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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Sunrise Pharma Ltd, an Indian manufacturing company, wishes to raise a foreign currency ECB. Which statement correctly describes the permitted end-use position under the ECB framework?

ECB proceeds can be used for working capital, general corporate purposes and repayment of rupee loans, provided the applicable minimum average maturity period is met. Real estate activity, land purchase and capital market or equity investment are negative end-uses and are not permitted.

  1. AECB proceeds may be freely used for investment in the real estate business and purchase of land
  2. BECB proceeds may be used for working capital, general corporate purposes and repayment of rupee loans, subject to the minimum average maturity period applicableCorrect
  3. CECB proceeds may be used for investing in the capital market and equity investment in India
  4. DECB proceeds may be used for on-lending to other entities for any purpose without restriction

Explanation

Under the revised framework, end-uses such as working capital, general corporate purposes and repayment of rupee loans are permitted, subject to minimum average maturity (MAMP) conditions. Negative end-uses include real estate activity, purchase of land, investment in the capital market and equity investment, so options A and C are wrong. Unrestricted on-lending is also prohibited.

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