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04-20-2012, 08:43 AM #1
Airlines can raise up to $1 bn for working capital: Govt
As a relief to cash-strapped airlines, the government on Thursday said it will allow them to raise even working capital resources through external commercial borrowings (ECBs) route.
Within an overall ceiling of $1 billion, each of the carriers can borrow up to $300 million from overseas, the Finance Ministry said in a statement.
"This limit can be availed either in a lump-sum or in tranches depending upon the utilisation during one year...," it said.
RBI is expected to notify within a week guidelines for the proposal which was part of the Budget 2012-13.
So far, airlines were allowed to raise foreign capital only for import of capital equipment like aircraft.
The individual proposals would require approval of the Reserve Bank which will take into account parameters such as cash flows and capacity to repay the debt from their foreign exchange earnings.
In order to increase access to ECBs, RBI would consider relaxation in the average maturity period for ECBs above $20 million from five to three years.
"This policy decision will provide an additional source of low-cost capital to the airline industry and help them tide over their present financial crunch," the ministry said.
The facility has been provided in the wake demand for additional finance for working capital and capacity expansion.
High operating costs, particularly on account of high fuel costs, have put additional stress on the airline industry, the statement said.
Finance Minister Pranab Mukherjee in the Budget had announced that companies in the aviation sector would be allowed to avail ECBs for a period of one year for working capital and refinancing of outstanding working capital rupee loan.
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.