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ECB door closed for townships
High stakes

New Delhi, May 18: The government today barred companies from raising money abroad to develop integrated townships. This is expected to help arrest excessive flow of capital into the real estate sector.

Today’s tightening of external commercial borrowing (ECB) norms is only for integrated townships, but analysts feel the move is likely to slow the flow of overseas money into the country and help tame inflation and bring down the value of the rupee against foreign currencies, especially the dollar.

So far, the ECBs were not permitted for real estate development, but integrated townships were excluded. From today, the ECBs will not be an option for raising funds to develop integrated townships — those built on at least 100 acres of land.

An official statement issued here said: “It has been decided to modulate the capital inflows through the ECBs by modifying some aspects of the policy... It has been decided to withdraw the exemption accorded to the development of integrated townships.”

The move came on the heels of the government including certain sections of preferential shares within the ECBs so that the flow slows down. Indian companies can raise as much as $500 million from abroad in a financial year without the approval of the central bank and if more categories are included under the ECBs, the limit would be exhausted sooner than later.

Lower rates

Companies will be able to tap the ECBs at lower interest rates as the government has cut the upper limit of the cost for such borrowings by 50-100 basis points. This has been done in view of better sovereign credit rating of the country.

Such borrowings of 3-5 year maturity period could now be raised at rates up to 150 basis points above the global benchmark Libor against earlier 200 points.

Those borrowings maturing after five years could be raised at rates up to 250 basis points above Libor against 350 at present.

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