Indian Companies have an option of onshore and offshore debt funding. The offshore funding routes are generally highly regulated and need to comply with several conditions provided under Foreign Exchange Management Act, 1999 (“FEMA”).
Debt in India from overseas sources can be made by way of various instruments, such as:
1. Non-Convertible Debentures (“NCDs”): are debt instruments which cannot be converted into equity shares of a company. FEMA regulations currently permit foreign investments into India by way of unlisted or listed NCDs. NCDs have a fixed maturity date with an interest that can be paid along with the principal amount either monthly, quarterly, or annually depending on the term of issue. Investment in NCDs can be made by overseas parties subject to regulatory compliances. Acquisition or subscription of NCDs by foreign parties other than FPIs is considered an external commercial borrowing (ECB). However, listed NCDs are not considered as ECBs.
2. External Commercial Borrowing (“ECB”): is an infusion of capital by direct lending or lending in exchange of rupee-denominated bonds. ECBs are trending commercial loans raised by eligible resident entities from recognized non-resident entities. ECBs are gaining more prominence in Indian Markets as funding by the companies through debt has traditionally been a preferred mode of funding due to its inherent advantages such as security creation, minimum guaranteed returns, and tax optimization for both the lender as well as the borrower.
ECB framework is governed as per RBI’s Master Circular on External Commercial Borrowings, Trade Credits and Structured Obligations and Foreign Exchange Management Act, 1999 (FEMA).
ECBs can be raised through an automatic route on meeting the eligibility criteria and checkpoints to fall under the automatic route. If they do not fall under the automatic route, the prospective borrowers are required to send their requests for approval to the Reserve Bank through their Authorised Dealer Banks.
We at SimplyBiz firstly understand the specific requirement of the borrower and advise on the mode of borrowing i.e NCD or ECB. We do a comprehensive eligibility check and advise on the permitted and non-permitted end-uses, Exchange rates, etc. We also handhold companies and advise them on the end-uses of proceeds raised We also assist with the regular compliances in terms of filing returns.
Please reach us at firstname.lastname@example.org with your requirements and we shall be happy to help.