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K.R.Srivats

New Delhi, Dec. 30 Indian companies may soon be able to finance their acquisitions abroad with the currency of equity shares of their subsidiaries. The Law Ministry is now vetting the proposed guidelines on issuance of ‘foreign currency exchangeable bonds’ (FCEBs) by Indian companies.

Official sources said that the enabling mechanism for companies to issue FCEBs is likely to be in placed before the Budget for 2008-09 is presented. Through FCEBs, Indian companies would be able to unlock a part of their holdings in group companies for meeting their financing requirements.

At present, when an Indian company issues convertible debentures or bond, it is converted into shares of that company.

World over, there is a bond called ‘exchangeable bond’ where a company can issue bonds but on conversion it can pass on shares of any other company where it has equity stake.

However, in the Indian context, a parent company would be allowed to issue FCEBs with shares of a subsidiary company alone, and not any other company.

Put simply, a parent company A with investments in company B, which is a subsidiary, and company C, which is not a subsidiary, could issue FCEBs with shares of company B alone.

“To start with, FCEBs would be allowed for companies having parent-subsidiary relationship. We will go by the Company Law definition of what would constitute a parent company and what would be a subsidiary company,” sources added.

Sources also said that the existing foreign investment (FDI/FII) norms would apply for investments made into subsidiary’s shares on conversion of FCEBs.

A Finance Ministry official said that the proposed guidelines on FCEBs would “almost mirror” the norms specified for foreign currency convertible bonds (FCCBs) except that the conversion of the bond could be with shares of subsidiary company in the case of FCEBs.

In the run-up to Budget 2007-08, a number of industry associations had represented to the Finance Ministry that companies be allowed to finance acquisitions abroad through the currency of their equity holding in group companies.

More Stories on : Overseas Investments | Mergers & Acquisitions | Financial Policy | Forex

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