ECB breaches found rampant
The Financial Express, December 9, 2009, Page 1
Sunny Verma, New Delhi
Even as the Enforcement Directorate investigates alleged violation of overseas borrowings rules by three companies belonging to Anil Ambani’s ADA Group, RBI has reported 16 other cases where companies have not complied with similar norms since April 2005.
Leading companies accused of flouting rules for foreign currency convertible bonds (FCCBs), an overseas borrowing tool, include Hotel Leela Ventures, Gitanjali Gems, Educomp Solutions, 3i Infotech, Subex and Sharon Biomedicine, among others, according to information tabled by the finance ministry in Parliament on Tuesday.
Firms issuing FCCBs are required to follow guidelines spelt out under the external commercial borrowings (ECB) policy. This specifies sectors and areas wherein the foreign loans can be utilised (end-use norms), besides a number of other conditions imposed from a macroeconomic stability perspective.
A company under investigation by RBI or the Enforcement Directorate for flouting ECB policy is barred from accessing further overseas loans under the automatic route, the central bank clarified in June. Any request by such a firm for ECB is examined on a case-to-case basis under the approval route.
“Once a company finalises the tenure, interest rate and amount of ECB, and signs a loan agreement with potential lenders, it fills out a specified form and submits it to RBI. The central bank then allocates the company a loan registration number,” a senior RBI official explained to FE. No company can raise funds without this number.
Scores of companies, including Hotel Leela Ventures, Country Club, Kamat Hotels, Sharon Biomedicine, Plethico Pharmaceuticals and Educomp Solutions, did not obtain the number from RBI. Others such as Gitanjali Gems and Reliance Communication violated end-use norms. Subex, 3i Infotech and Cranes Software International were found ineligible for raising FCCBs.
Gitanjali Gems, which was permitted to raise funds in November 2006, used $42.22 million for the development of SEZs, which was not a permissible end-use. In June, though, RBI allowed developers to raise ECBs to provide SEZ infrastructure.
Last Tuesday, the finance ministry said three ADAG firms--Reliance Infrastructure, Reliance Natural Resources and Reliance Communication--violated ECB norms. In May, the Enforcement Directorate sent Apollo Hospitals Enterprise a show-cause notice for allegedly violating Foreign Exchange Management Act, 1999, rules by using a portion of the Rs 300 crore raised via global depository receipts in Indian equity markets. End-use violations were observed with respect to two ECB transactions--$360 million and $150 million--by Reliance Infrastructure.
RBI has taken action against these companies under Section 15 of the Act. Many of the companies that contravened the rules have gone through the process of compounding, under which RBI imposes a penalty. Reliance Communication is yet to approach RBI for compounding, which is voluntary. RBI, though, brings ECB violations to the borrowers’ notice through its authorised dealer banks.
Companies raised $5.09 billion through FCCBs in 2006-07, $5.68 billion in 2007-08, $0.90 million in 2008-09 and $2.22 billion up to October 2009.
The Financial Express, December 9, 2009, Page 1
Sunny Verma, New Delhi
Even as the Enforcement Directorate investigates alleged violation of overseas borrowings rules by three companies belonging to Anil Ambani’s ADA Group, RBI has reported 16 other cases where companies have not complied with similar norms since April 2005.
Leading companies accused of flouting rules for foreign currency convertible bonds (FCCBs), an overseas borrowing tool, include Hotel Leela Ventures, Gitanjali Gems, Educomp Solutions, 3i Infotech, Subex and Sharon Biomedicine, among others, according to information tabled by the finance ministry in Parliament on Tuesday.
Firms issuing FCCBs are required to follow guidelines spelt out under the external commercial borrowings (ECB) policy. This specifies sectors and areas wherein the foreign loans can be utilised (end-use norms), besides a number of other conditions imposed from a macroeconomic stability perspective.
A company under investigation by RBI or the Enforcement Directorate for flouting ECB policy is barred from accessing further overseas loans under the automatic route, the central bank clarified in June. Any request by such a firm for ECB is examined on a case-to-case basis under the approval route.
“Once a company finalises the tenure, interest rate and amount of ECB, and signs a loan agreement with potential lenders, it fills out a specified form and submits it to RBI. The central bank then allocates the company a loan registration number,” a senior RBI official explained to FE. No company can raise funds without this number.
Scores of companies, including Hotel Leela Ventures, Country Club, Kamat Hotels, Sharon Biomedicine, Plethico Pharmaceuticals and Educomp Solutions, did not obtain the number from RBI. Others such as Gitanjali Gems and Reliance Communication violated end-use norms. Subex, 3i Infotech and Cranes Software International were found ineligible for raising FCCBs.
Gitanjali Gems, which was permitted to raise funds in November 2006, used $42.22 million for the development of SEZs, which was not a permissible end-use. In June, though, RBI allowed developers to raise ECBs to provide SEZ infrastructure.
Last Tuesday, the finance ministry said three ADAG firms--Reliance Infrastructure, Reliance Natural Resources and Reliance Communication--violated ECB norms. In May, the Enforcement Directorate sent Apollo Hospitals Enterprise a show-cause notice for allegedly violating Foreign Exchange Management Act, 1999, rules by using a portion of the Rs 300 crore raised via global depository receipts in Indian equity markets. End-use violations were observed with respect to two ECB transactions--$360 million and $150 million--by Reliance Infrastructure.
RBI has taken action against these companies under Section 15 of the Act. Many of the companies that contravened the rules have gone through the process of compounding, under which RBI imposes a penalty. Reliance Communication is yet to approach RBI for compounding, which is voluntary. RBI, though, brings ECB violations to the borrowers’ notice through its authorised dealer banks.
Companies raised $5.09 billion through FCCBs in 2006-07, $5.68 billion in 2007-08, $0.90 million in 2008-09 and $2.22 billion up to October 2009.
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