Legal Question in Business Law in India

13.01.2016

Dear Sir / Madam,

The implication / risk to the lender of the funds to the Special Purpose Vehicle (SPV) during arbitration, will depend on the nature and the reason of the dispute, and the terms and conditions of the concession agreement that the SPV has with NHAI. The following reading may help :

External Commercial Borrowings (ECB) by Holding Companies / Core Investment Companies for the project use in Special Purpose Vehicles (SPVs):

RBI has in order to strengthen the flow of resources to infrastructure sector, decided to permit Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank to raise ECB under the automatic route/approval route, as the case may be, for project use in Special Purpose Vehicles (SPVs). This was notified vide its circular RBI/2013-14/397A.P. (DIR Series) Circular No. 78 dated December 3, 2013. The following are the terms and conditions in this regard:

1. The business activity of the SPV should be in the infrastructure sector where �infrastructure� is defined as per the extant ECB guidelines;

2, The infrastructure project is required to be implemented by the SPV established exclusively for implementing the project;

3. The ECB proceeds is utilized either for fresh capital expenditure (capex) or for refinancing of existing Rupee loans (under the approval route) availed of from the domestic banking system for capex as per the extant norms on refinancing;

4. The ECB for SPV can be raised up to 3 years after the Commercial Operations Date of the SPV;

5. The SPV should give an undertaking that no other method of funding, such as, trade credit (if for import of capital goods), etc. will be utilized for that portion of fresh capital expenditure financed through ECB proceeds;

6. The ECB proceeds should be kept in a separate escrow account as per the extant guidelines on parking of ECB proceeds pending utilization for permissible end-uses and use of such proceeds should be strictly monitored by the ADs for permissible uses;

7. In case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the additional terms and conditions for raising ECB for project use in SPVs will be as under:

(a). The ECB availed is within the ceiling of leverage stipulated for CICs, i.e., their outside liabilities including ECB cannot be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet; and

(b). In case of CICs with asset size below Rupees 100 crore, the ECB availed of should be on fully hedged basis.

Regards,