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Initial Public Offer (IPO) is an event of share issuing when a company comes up with its share/securities issued for the first time.
A process of public issue where the company gives a price range (known as price band) and it is left upon the share applicants to quote their prices on it— the highest bidders getting the shares. This is a variant of share issue at premium but considered a safer choice.
A prospective borrower can access external commercial borrowings (ECBs) under two routes, namely the ‘automatic route’ and the ‘approval route’. ECBs not covered under the automatic route are considered on case-by-case basis by the RBI under the approval route. The High Level Committee on ECB took a number of decisions in September 2011 to expand the scope of ECBs which include:
(i) High networth individuals (HNIs) who fulfil the criteria prescribed by
SEBI can invest in IDFs.
(ii) IFCs have been included as eligible issuers for FII investment in the corporate bonds long-term infra category.
(iii) ECB would be permitted for refinancing of rupee loans of infrastructure projects on the condition that at least 25 per cent of such ECBs shall be used for repayment of the said rupee loan and 75 per cent invested in new projects in the infrastructure sector (but only under the approval route).
(iv) Refinancing of buyer’s/supplier’s credit through ECBs for the purchase of capital goods by companies in the infrastructure sector was approved. This would also be permitted only under the approval route.
(v) ECBs for interest during construction (IDC) that accumulates on a loan during the project execution phase for companies in the infrastructure sector would be permitted. This would be subject to the condition that the IDC is capitalised and is part of the project cost.
(vi) Renminbi (RMB)—the Chinese currency —was approved as an acceptable currency for raising ECBs subject to/limit of US $ 1 billion within the existing ECB ceiling (allowed only through the approval route).
(vii) The existing ECB limits under the automatic route were enhanced from US $ 500 million to US$ 750 million for eligible corporates. For borrowers in the services sector, the limit has been enhanced from US$ 100 million to US$ 200 million and for NGOs engaged in micro-finance activities from the existing US$ 5 million to US$ 10 million.
Till February 2017, the norms for ECB were further simplified and streamlined by the government—major steps taken in this regard were as given below:
(i) Enhancing the limit for refinancing rupee loans through ECB from 25 per cent to 40 per cent for Indian companies in the power sector;
(ii) Allowing ECB for capital expenditure on the maintenance and operation of toll systems for roads and highways so long as they are a part of the original project subject to certain conditions, and also for low cost housing projects;
(iii) Reducing the withholding tax from 20 per cent to 5 per cent for a period of three years (July 2012–June 2015) on interest payments on ECBs;
(iv) Introducing a new ECB scheme of US $10 billion for companies in the manufacturing and infrastructure sectors;
(v) Permitting the Small Industries Development Bank (SIDBI) as an eligible borrower for accessing ECB for on-lending to the micro, small and medium enterprises (MSMEs); and
(vi) Permitting the National Housing Bank (NHB)/Housing Finance Companies to avail themselves of ECBs for financing prospective owners of low cost /affordable housing units.
(vii) In December 2015, the RBI announced a new ECB framework which was more attuned to the current economic and business environment— from regulatory perspective, now, the ECBs will have three main clear- cut categories—
(a) Medium-term foreign currency-denominated ECB;
(b) Long-term foreign currency-denominated ECB (with minimum average maturity of 10 years); and
(c) Indian rupee-denominated ECB.
The new lenders comprise overseas regulated financial institutions, sovereign wealth funds, pension funds, insurance companies, etc. and has an exhaustive list of permissible end-users with only a small negative list for long-term foreign currency-denominated ECB and INR- denominated ECB.
(viii) In order to facilitate rupee-denominated borrowing from overseas, the government decided (December 2015) to put in place a framework for issuance of rupee-denominated overseas bonds (such bonds have got a popular tag of the masala bonds).
These bonds will have minimum maturity of 5 years. These bonds can not be issued for real estate and capital markets sectors. Withholding tax of 5 per cent will be applicable on interest income from these bonds, but the capital gains arising in case of appreciation of the rupee will be exempted from tax.