Foreign currency loans in India can be availed through following routes-
1. Trade Credit – Buyer’s credit, Suppliers credit and PCFC.
Trade credits are generally short term and part of working capital financing. Buyers credit or Supplier’s credit are used for import financing. Be swapped into PCFC is used for export financing. The loans are given by banks. Buyer’s Credit can be availed for capital imports also for up to 3 years. However unlike earlier times, Buyer’s credit cannot be availed now backed by local LOU ( Letter of Undertaking).
2. ECB or External commercial lending
ECB regulations have gone through significant liberalisation in recent times. ECB can be borrowed for a minimum period of 3 years and are usually term loans. ECB cannot be borrowed for capital market transactions or for working capital. However if a company is borrowing from foreign shareholder of it’s own, then ECB can be availed for working capital as well.
3. USD Bonds
USD Bonds can be issued usually by large Indian companies and are listed abroad. The bonds follows guidelines similar to ECB however overseas bond market should have an appetite for the company and risk profile.
4. FCNR Loans
FCNR loans can be availed by Indian companies for short term as well as for long term. There is not much of restriction on the end use. For example it can be availed for general corporate purpose as well as for working capital or capex. FCNR loans are always see high demand and hence banks increase the costing in such a way so that there is almost no arbitrage left for the borrower.
5. Swapped USD Loan – INR loans or NCDs
Swapped USD Loan – INR loans or NCDs can be swapped into USD or EUR loans through CCS or POS. The CCS or POS converts the INR loan into an USD loan or EUR loan. The transaction can be undertaken by a company which fulfils at least one of the three following conditions –
A) the company should have export
B) the company should be listed
C) The company should have a net worth of INR 200 crores or more
QuantArt can advise on Foreign currency borrowing and hedging.