Government Relaxes ECB Norms: Infrastructure Companies to benefit: can borrow 500 million

The news cannot be sweeter than this for companies in the infrastructure sector. The government of India yesterday relaxed the ECB or External Commercial borrowing Norms and allowed the infrastructure companies the extra limit so that they can now borrow $500 million a year for rupee spending in India against $100 million at present. What is ECB External Commercial borrowing?

But every good news comes with string attached and so is this one. As per the new norms, companies borrowing in excess of $100 million should be able to repay the loan only after a minimum duration of seven years. Hence, from the government prospective, this will ensure better regulation and allow greater credit-worthiness of the borrowing companies. The loan should have an average maturity of seven years to ensure that only infrastructure companies with genuine long-term funding requirements access this window.

Then other good news is that borrowing debt will become easy, owing to the relaxation of interest caps on long-term funds beyond seven years. Borrowers can now tap such funds at higher interest rates — 450 basis points above 6 months Libor Interest rate. Infrastructure companies are those which are involved in sectors like power, airports, roads and ports.