SEZs to raise overseas loans

SEZs to raise overseas loans
The Financial Express, June 9, 2009, Page 1

Sunny Verma, New Delhi

External commercial borrowing (ECB) norms are slated to be liberalised further with the government planning to expand the list of sectors that can raise funds overseas. Among the biggest beneficiaries of the move will be developers of special economic zones (SEZs).

RBI has finally agreed to allow SEZs to raise overseas loans under the same guidelines as infrastructure firms—a proposal that it has been resisting since 2006. This is a significant change in stance as the central bank has hitherto treated SEZs as real estate projects. RBI conveyed its altered view to the finance ministry last month, officials said.

Funds in the overseas credit market are relatively cheaper than domestic debt. SEZ developers would probably be allowed to raise international funds for any purpose, except the purchase of land, officials said.

The proposed relaxation comes as a part of an overall review of ECB policy being carried out by the government to ease the flow of capital into the critical infrastructure sector. The high-level coordination committee on ECBs—comprising finance secretary Ashok Chawla, an RBI deputy governor and other senior officials—is expected to finalise the new norms this week.

“It will give us access to overseas funds and ease the credit constraints faced by developers. Even the eGoM (empowered group of ministers) has recommended this to RBI,” said Export Promotion Council for EOUs & SEZ Units director-general Lalit B Singhal.
Last November, the eGoM has suggested to RBI that SEZ developers be allowed to raise up to $500 million in ECBs annually. The eGoM, chaired by Pranab Mukherjee, who is currently the finance minister, had also asked RBI to treat SEZs as infrastructure projects rather than real estate projects.

The real estate tag assigned by RBI bars SEZ developers from raising ECBs, while raising the risk weight assigned by banks on loans to them. However, units based in these zones are permitted to raise overseas loans.

“It is broadly consistent with having SEZs that are export oriented. Now raising funds abroad will be easy since there is lot of global liquidity. But the question is, at what price,” said a leading economist, who asked not to be named.

The Ashok Chawla-led committee, which meets this week, has also debated the issue of allowing infrastructure firms to replace their rupee loans with foreign debt as a temporary measure.

This was seen as appropriate in light of the bloated borrowing programme of the government, which could crowd out corporate India when demand for credit is likely to pick up in the second half of this fiscal.