Client Alert January 2019

Finance & Prjects/Capital Markets Singapre Client Alert January 2019 Fr mre infrmatin, please cntact: James Huang Partner +65 6434 2564 James.Huang@bakermckenzie.cm Emmanuel Hadjidakis Partner +65 6434 2781 Emmanuel.Hadjidakis@bakermckenzie.cm Pallavi Gpinath Aney Partner +65 6434 2762 Pallavi.Gpinath.Aney@bakermckenzie.cm Chu Kah Chin Partner +65 6434 2569 KahChin.Chu@bakermckenzie.cm Revised Framewrk fr External Cmmercial Brrwings Intrductin The Reserve Bank f India (the RBI ) issued a circular n 16 January 2019 (the 2019 ECB Framewrk ), effectively changing the Master Directin n External Cmmercial Brrwings, Trade Credits, Brrwing and Lending in Freign Currency by Authrised Dealers and Persns ther than Authrised Dealers dated 1 January 2016, as amended frm time t time (the Master Directin ). 1 The 2019 ECB Framewrk makes access t external cmmercial brrwings ( ECBs ) easier fr Indian entities and is expected t blster the masala bnds market. It represents a significant rewrite f the previus regulatry framewrk. The Master Directin is nw being amended t reflect the changes intrduced by the 2019 ECB Framewrk. We discuss belw certain key changes brught abut as a result f the 2019 ECB Framewrk. Key Features* Tw simplified ECB tracks INR and freely cnvertible freign currencies. RBI apprval is n lnger required fr masala bnds. Masala bnd prceeds can n lnger be used twards wrking capital r general crprate purpses r fr the repayment f rupee lans. All entities eligible t receive FDI can raise ECBs; all NBFCs can nw raise freign currency funds. Minimum maturity reduced t three years in mst cases. Unifrm limit t raise ECBs up t USD 750 millin (r the equivalent) in each financial year. * Exceptins are applicable t many f these features. Please cnsult with legal cunsel n the specifics f a particular situatin. 1 The RBI had earlier, thrugh a ntificatin dated 17 December 2018, cnslidated the prvisins relating t brrwing and lending in freign currency and Indian Rupees under the Freign Exchange Management (Brrwing and Lending) Regulatins, 2018, which replaced the Freign Exchange Management (Brrwing r Lending in Rupees) Regulatins, 2000 and superseded Regulatin 21 f the Freign Exchange Management (Transfer r Issue f Any Freign Security) (Amendment) Regulatins, 2004. Client Alert 25 January 2019 1

Summary f Key Changes The key changes intrduced pursuant t the 2019 ECB Framewrk are summarised belw. Merging f Tracks and Unifrm Minimum Average Maturity Under the Master Directin, the framewrk fr raising ECBs cmprised three tracks: Track I cmprised f medium-term freign currency denminated ECBs ( FCY Denminated ECBs ) with a minimum average maturity perid (the MAMP ) f three t five years; Track II cmprised f lng-term FCY Denminated ECBs with a MAMP f 10 years; and Track III cmprised Indian Rupee denminated ECBs ( INR Denminated ECBs ) with a MAMP f three t five years. The 2019 ECB Framewrk has nw merged: Track I and Track II int a single track cmprising FCY Denminated ECBs; and Track III with the prvisins related t Rupee denminated bnds ( RDBs ) int a single track cmprising INR Denminated ECBs. The MAMP acrss bth FCY Denminated ECBs (including Freign Currency Cnvertible Bnds ( FCCBs ) and Freign Currency Exchangeable Bnds ( FCEBs )) and INR Denminated ECBs is nw three years. All-in-Cst Ceiling The all-in-cst ceiling acrss bth FCY Denminated ECBs and INR Denminated ECBs cntinues t remain 450 basis pints ver the benchmark rate. Fr FCY Denminated ECBs, LIBOR r any ther six-mnth interbank interest rate applicable t the currency f brrwing (e.g., EURIBOR) can be the benchmark rate. Unifrm Limit All eligible brrwers can nw raise ECBs in an amunt up t USD 750 millin (r its equivalent) in each financial year under the autmatic rute, replacing the sectr specific limits previusly set ut under the Master Directin. N Prir Apprval fr Masala Bnds The requirement fr btaining prir apprval f the RBI fr issuing RDBs has been dispensed with. This is a significant relaxatin fr issuers intending t issue masala bnds. Client Alert 25 January 2019 2

End Use Restrictins Under the Master Directin, prceeds frm the issuance f RDBs culd be used fr wrking capital r general crprate purpses r fr repayment f rupee lans. Hwever, under the 2019 ECB Framewrk, prceeds frm the issuance f RDBs can be used fr wrking capital r general crprate purpses r fr repayment f rupee lans nly if such RDBs are held by freign equity hlders. Expanded List f Eligible Brrwers The list f eligible brrwers has been expanded t include all entities eligible t receive freign direct investment ( FDI ), amng thers. As a result, entities perating in sectrs such as bradcasting, defence, e- cmmerce, insurance, pharmaceuticals and print media, which were previusly nt cvered as eligible brrwers are nw eligible t raise ECBs. Hwever, this wuld als mean that entities perating in sectrs that are nt permitted t receive FDI (such as real estate business, gambling business, railway peratins and atmic energy) will be restricted frm raising ECBs. Certain nn-banking finance cmpanies ( NBFCs ) were previusly nt eligible t raise FCY Denminated ECBs. They can nw raise bth FCY Denminated ECBs and INR Denminated ECBs under the 2019 ECB Framewrk. In additin, Indian banks (which were nly permitted t issue certain types f RDBs under the Master Directin) can als raise ECBs under the 2019 ECB Framewrk. Expanded List f Recgnised Lenders Unlike the Master Directin which specified a set f recgnised lenders (under each f the tracks) frm whm a brrwer culd raise an ECB, the 2019 ECB Framewrk des nt specify a set f recgnised lenders. It instead prvides that any resident f a Financial Actin Task Frce ( FATF ) r Internatinal Organisatin f Securities Cmmissins ( IOSCO ) cmpliant cuntry 2 can prvide ECBs t eligible brrwers. In additin, individuals (wh were earlier permitted t nly lend in INR and were subject t additinal due diligence requirements) can be recgnised lenders, 2 The 2019 ECB Framewrk clarifies that: a FATF cmpliant cuntry is a cuntry that is a member f FATF r a member f a FATF-style reginal bdy; and shuld nt be a cuntry identified in the public statement f the FATF as: a jurisdictin having strategic Anti-Mney Laundering (AML) r Cmbating the Financing f Terrrism (CFT) deficiencies t which cunter measures apply; r a jurisdictin that has nt made sufficient prgress in addressing the deficiencies r has nt cmmitted t an actin plan develped with the FATF t address the deficiencies; an IOSCO cmpliant cuntry is a cuntry whse securities market regulatr is a signatry t: IOSCO s Multilateral Memrandum f Understanding (Appendix A Signatries); r a bilateral memrandum f understanding with the Securities and Exchange Bard f India fr infrmatin sharing arrangements. Client Alert 25 January 2019 3

prvided they are freign equity hlders r if they have subscribed t bnds r debentures listed n a freign stck exchange. FCCBs and FCEBs cntinue t be Subject t Other Regulatins FCCBs cntinue t be subject t the requirements f the Issue f Freign Currency Cnvertible Bnds and Ordinary Shares (Thrugh Depsitary Receipt Mechanism) Scheme 1993, as amended. Similarly, FCEBs als cntinue t be subject t the requirements f the Issue f Freign Currency Exchangeable Bnds Scheme 2008, as amended. *** The key prvisins f the 2019 ECB Framewrk fllwing these changes are summarised in the Annexure fr easy reference. Client Alert 25 January 2019 4

Annexure Key Prvisins f the 2019 ECB Framewrk Key Prvisins FCY Denminated ECB INR Denminated ECB Currency Any freely cnvertible freign currency. Indian Rupees. Minimum Average Maturity The MAMP acrss bth FCY Denminated ECBs (including FCCBs and FCEBs) and INR Denminated ECBs is nw three years. The MAMP fr ECBs up t USD 50 millin (r the equivalent) raised by cmpanies engaged in the manufacturing sectr is ne year. If the ECB is raised frm a freign equity hlder and used fr wrking capital purpses, general crprate purpses r fr the repayment f Rupee lans, the MAMP will be five years. Put and call ptins are nt exercisable prir t the cmpletin f the applicable MAMP. Key Changes frm the Master Directin: The MAMP fr Track I and Track III ECBs under the Master Directin was as fllws: All-in-cst Ceilings The MAMP fr brrwings f up t USD 50 millin (r the equivalent) was three years and the MAMP fr brrwings abve USD 50 millin was five years. The MAMP fr cmpanies engaged in the infrastructure sectr, nn-banking financial cmpanies - infrastructure finance cmpanies and certain ther cmpanies in the manufacturing sectr was three years, irrespective f the amunt f brrwing. The MAMP fr FCCBs r FCEBs, irrespective f the amunt f the brrwing, was five years. The all-in-cst ceiling acrss bth FCY Denminated ECBs and INR Denminated ECBs cntinues t remain 450 basis pints ver the Benchmark Rate 3. The prepayment charge r penal interest, if any, fr default r breach f cvenants cannt be mre than 2 per cent. ver the cntracted rate f interest n the utstanding 3 Benchmark rate fr: FCY Denminated ECBs is six-mnth LIBOR r any ther six-mnth interbank interest rate applicable t the currency f brrwing (e.g., EURIBOR); and INR Denminated ECBs is the prevailing yield f Gvernment f India securities f crrespnding maturity. Client Alert 25 January 2019 5

principal amunt and will nt be included within the all-incst ceiling. All-in-cst has been defined t include the rate f interest, ther fees, expenses, charges, guarantee fees, exprt credit agency charges, whether paid in freign currency r Indian Rupees but will nt include cmmitment fees and withhlding tax payable in Indian Rupees. Default interest and pre-payment charges are als excluded frm the all-in-cst ceiling. In the case f fixed rate lans, the swap cst plus spread cannt be mre than the flating rate plus the applicable spread. Fr FCCBs, the issue related expenses cannt exceed 4 per cent. f the issue size and in the case f a private placement, these expenses cannt exceed 2 per cent. f the issue size. Varius cmpnents f the all-in-cst have t be paid by the brrwer withut recurse t the drawdwn f the ECB; in particular, ECB prceeds cannt be used fr the payment f interest r charges. Key Changes frm the Master Directin: Eligible Brrwers Exprt Credit Agency charges have nw been included in the definitin f all-in-cst. Fr FCY Denminated ECBs, any ther six-mnth interbank interest rate applicable t the currency f brrwing (e.g., EURIBOR) can be cnsidered as the benchmark rate. It has been clarified that certain cmpnents f the all-in-cst have t be paid by the brrwer withut recurse t the prceeds f the ECB, including payment f interest r charges. All entities that are eligible t receive FDI are nw eligible brrwers. Additinally, prt trusts, units in special ecnmic znes, Small Industrial Develpment Bank f India, Exprt-Imprt Bank f India, registered entities engaged in micr-finance activities, registered nt fr prfit cmpanies, registered scieties and nn-gvernmental rganisatins can als raise ECBs under the 2019 ECB Framewrk. Key Changes frm the Master Directin: Under the Master Directin, nly certain entities specified by the RBI culd raise ECBs. The 2019 ECB Framewrk has bradened the list f eligible brrwers t all entities which are eligible t receive FDI. As a result f this change, entities such as certain NBFCs and thse perating in sectrs such as bradcasting, defence, e- Client Alert 25 January 2019 6

cmmerce, insurance, pharmaceuticals and print media, which were previusly nt cvered as eligible brrwers are nw eligible t raise ECBs. Recgnised Lenders Hwever, this wuld als mean that entities perating in sectrs that are nt permitted t receive FDI (such as real estate business, gambling business, railway peratins and atmic energy) will be restricted frm raising ECBs. Certain types f NBFCs, which were previusly nt eligible t raise FCY Denminated ECBs, can nw raise bth FCY Denminated ECBs and INR Denminated ECBs under the 2019 ECB Framewrk. Indian banks (which were nly permitted t issue certain types f RDBs under the Master Directin) can als raise ECBs under the 2019 ECB Framewrk. Any resident f a FATF r IOSCO cmpliant cuntry can lend ECBs t eligible brrwers. Multilateral and reginal financial institutins where India is a member cuntry are als recgnised lenders. Individuals will be recgnised lenders nly if they are freign equity hlders r are subscribers t bnds r debentures listed n a freign stck exchange. Freign branches r subsidiaries f Indian banks are permitted as recgnised lenders nly fr FCY Denminated ECBs. They are still nt eligible t invest in FCCBs and FCEBs. Freign branches r subsidiaries f Indian banks, subject t applicable prudential nrms, can participate as arrangers, underwriters, market-makers r traders fr RDBs issued utside India. Hwever, freign branches r subsidiaries f Indian banks cannt underwrite issuances by Indian banks. Key Changes frm the Master Directin: Under the Master Directin, nly certain entities specified by the RBI were listed as recgnised lenders. In additin, individuals (wh were earlier permitted t nly lend in INR and were subject t additinal due diligence requirements) can be recgnised lenders, prvided they are freign equity hlders r if they have subscribed t bnds r debentures listed n a freign stck exchange. Client Alert 25 January 2019 7

Negative End- Uses The list f activities fr which ECB prceeds cannt be used nw includes the fllwing: Real estate activities; Investment in capital markets; Equity investment; Wrking capital purpses, except frm freign equity hlders; General crprate purpses, except frm freign equity hlders; Repayment f Rupee lans, except frm freign equity hlders; and On-lending t entities fr the abve activities. Key Changes frm the Master Directin: Under the Master Directin, prceeds frm the issuance f RDBs culd be used fr wrking capital r general crprate purpses r fr repayment f rupee lans. Hwever, under the 2019 ECB Framewrk, prceeds frm the issuance f RDBs can be used fr wrking capital r general crprate purpses r fr repayment f rupee lans nly if such RDBs are held by freign equity hlders. The 2019 ECB Framewrk als prvides fr negative end-use restrictins n use f prceeds fr real estate activities, as ppsed t the Master Directin which prvided that ECBs culd nt be raised fr investment in real estate r purchase f land. The 2019 ECB Framewrk further defines real estate activities as any real estate activity invlving wn r leased prperty fr buying, selling and renting f cmmercial and residential prperties r land and als includes activities either n a fee r cntract basis assigning real estate agents fr intermediating in buying, selling, letting r managing real estate. Hwever, this wuld nt include cnstructin r develpment f industrial parks, integrated twnships, special ecnmic znes, purchase r lng term leasing f industrial land as part f a new prject r the mdernisatin r expansin f existing units r any activity under the definitin f infrastructure sectr. Individual limits All eligible brrwers, irrespective f the industry sectr they perate in, can nw raise ECBs f up t USD 750 millin (r its equivalent) in each financial year under the autmatic rute. Client Alert 25 January 2019 8

www.bakermckenzie.cm Baker McKenzie Wng & Lew 8 Marina Bulevard #05-01 Marina Bay Financial Centre Twer 1 Singapre 018981 Tel: +65 6338 1888 Fax: +65 6337 5100 Hedging Prvisins ECBs fr Entities subject t Restructuring Key Changes frm the Master Directin: The Master Directin prvided varius sectral limits in respect f ECBs that culd be raised by different types f eligible entities under the autmatic rute in each financial year. Under the 2019 ECB Framewrk, infrastructure space cmpanies are required t have a bard apprved risk management plicy and are required t mandatrily hedge 70% f their ECBs where the average maturity is less than five years. Such cmpanies were earlier required t mandatrily hedge 100% f their ECBs under the Master Directin. The 2019 ECB Framewrk als includes a prvisin that an entity which is subject t a restructuring scheme r a crprate inslvency reslutin prcess can raise ECBs nly if it is specifically permitted t d s under its reslutin plan. This is cnsistent with the recent changes t the inslvency laws in India. 2019 Baker & McKenzie. All rights reserved. Baker & McKenzie.Wng & Lew is a member f Baker & McKenzie Internatinal, a Swiss Verein with member law firms arund the wrld. In accrdance with the cmmn terminlgy used in prfessinal service rganizatins, reference t a "partner" means a persn wh is a partner, r equivalent, in such a law firm. Similarly, reference t an "ffice" means an ffice f any such law firm. This may qualify as "Attrney Advertising" requiring ntice in sme jurisdictins. This client alert is prvided as general infrmatin and des nt cnstitute legal advice. Baker & McKenzie des nt practice Indian law and the summaries f Indian regulatins cntained herein are derived frm ur discussins with Indian cunsel. The varius aspects f the new ECB framewrk discussed in this client alert can be develped in greater detail upn request and we can further analyse issues specific t a prpsed transactin n a case by case basis. Client Alert 25 January 2019 9