EXTERNAL COMMERCIAL BORROWINGS FOR CIVIL AVIATION SECTOR
In
line with the announcement made in the Union Budget for the year 2012-13 to
address the financial crunch faced by Indian aviation industry, RBI vide A. P.
(DIR Series) Circular No. 113 dated 24th April, 2012 has allowed companies in
civil aviation sector to avail ECBs on or before 23rd April 2013 for working
capital/refinancing of outstanding working capital rupee loan(s) under approval
route subject to following conditions:
- Airline Companies are registered under Companies Act, 1956 and has obtained license from DGCA for passenger transportation.
- ECB will be based on the cash flow, foreign exchange earnings and their capability to service the debt.
- Overall ceiling for the entire aviation sector would be USD One Billion and the maximum permissible ECB that can be availed by an individual airline company will be USD 300 Million.
- Minimum average maturity period should be three years.
- Roll over of ECB availed for working capital/refinancing of working capital is not allowed.
- A certificate from a chartered accountant confirming the requirement of the working capital loan and the projected foreign exchange cash flow/earnings which would be used for servicing the loan should be accompanied with the application.
- The foreign exchange required for repayment of ECB is not accessed from Indian markets and the liability is extinguished only out of the foreign exchange earnings of the borrowing company.
As
evident from the circular, it is a temporary measure to give much needed
breather to the companies in Civil Aviation Sector which are facing financial
difficulties, especially to fulfill their working capital needs. Allowing ECB
for Working Capital and refinancing the outstanding working capital is a
drastic move intended to revive the industry. Till date ECB in aviation sector
was allowed only for import of capital equipment like aircraft. Capacity to
raise up-to Rs. 1500 Cr., (individually) working capital overseas will
definitely help some of the domestic aviation companies to tide over the
present liquidity crisis. As there is an overall limit of this ECB facility,
the individual proposals would require approval of the RBI which will take into
account parameters such as cash flows and capacity to repay the debt from their
foreign exchange earnings for serving the debts.
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