The Hindu Business Line : Cos can issue exhangeable bonds in foreign currency

Mumbai, Sept 23 The Reserve Bank of India has announced the operational guidelines for Foreign Currency Exchangeable Bonds (FCEB), which will come into effect immediately.

This gives companies the option of issuing bonds in foreign currency, which can be converted into equity shares of another group company.

The advantage of this is that in case the promoter’s holding in a particular company is low, the company can raise funds without diluting the promoter’s stake, said a senior official in charge of treasury, with a public sector bank.

The government had announced the FCEB scheme in February this year.

Following the issuance of the guidelines by the RBI, companies can use these instruments to raise foreign capital.

Guidelines

An FCEB is a bond expressed in foreign currency and the principal and interest are payable foreign currency.

It can be subscribed to by a person who is resident outside in India, in foreign currency and exchangeable into equity of another company, which is the Offered Company.

The Issuing Company has to specify which the Offered Company is upfront, while issuing the bonds, said the bank official.

The Issuing Company shall be part of the promoter group of the Offered Company and shall hold the equity shares being offered at the time of issuance of FCEB.

The Offered Company should be a listed company, and should be eligible to issue or avail of Foreign Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB), said the RBI guidelines .

Maturity period floor

The minimum maturity of FECB shall be five years.

Proceeds of FCEB should be retained and or deployed overseas by the Issuing Company, said RBI.

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