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    Default ECB norms eased for power companies

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    Liberalising the external commercial borrowing (ECB) norms for power sector , the Centre on Wednesday said companies can now use up to 40 per cent of ***** to refinance their rupee debt, but the rest must be utilised for investments in new projects.

    Earlier, power companies were allowed to use only 25 per cent of the ECB to refinance their domestic rupee-debt loan.

    Also, the government opened the ECB route for capital expenditure on the maintenance and operations of toll systems in the roadways and highways sector provided these are part of the original project.

    Announcing implementation of the Budget announcements , Joint Secretary in the Finance Ministry (Capital Markets Division) Thomas Mathew said: "RBI is expected to issue relevant notifications within seven days giving effect to these Budget announcements".

    These are among the first of the announcements made in the Budget 2012-13 that are being implemented.

    Giving details, Mathew said that power companies will now be able to raise ECBs for refinancing their rupee debt up to maximum limit of 40 per cent, "provided the remaining 60 per cent of the ECB raised is utilised for investment in a new project".

    ECB, which totalled $35.9 billion in 2011-12, are considered attractive as cost of raising the loan is lower than that of domestic borrowings. Besides, ECBs give the borrowers an additional avenue to access to raise large amounts from global financial market.

    In view of the increasing capital requirement of the power sector, Finance Minister Pranab Mukherjee in his March 16 Budget speech, had announced the liberalisation for refinancing of rupee debt for the sector.

    The move would increase access to cheaper funds for companies in the power sector.

    In order to provide a fillip to the road sector and augment avenues for financing of such projects, Mukherjee had said ECB route would be allowed for maintenance and operations of toll systems.

    The policy decision, Mathew said, will provide an additional source of low-cost capital and encourage greater investment in road construction projects.

    The proportion of ECBs having maturity between 5 to 7 years has gone up from about 47 per cent in 2007-08 to almost 70 per cent in 2010-11. ECBs for infrastructure sector has gone up from 15.2 per cent in 2007-08 to 42.3 per cent in 2010-11.



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