Scheme for FCEBs notified, offer new route for capital raising

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New Delhi, Feb 16 (UNI) The government has notified a scheme for issue of Foreign Currency Exchangeable Bonds (FCEB) to unlock a part of holding in group companies for meeting their financing requirements.

Finance Minister P Chidambaram, in his Budget Speech 2007-08, had announced to put in place an enabling mechanism in this regard and this route will give greater teeth to companies to raise funds from overseas.

The FCEB is similar to foreign currency convertible bonds (FCCBs) in a way that the bond is expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency.

The bonds will be issued in foreign currency by an 'Issuing Company' and subscribed to by a person who is a resident outside India, the government said late last evening.

In case of FCCB, the bond gets converted at the option of the holder into the equity share of the issuing company.

However, in the case of an FCEB, the bond gets converted into the equity share of the offered company and not equity share of the issuing company.

This essentially means a holding company can now issue bonds tied to the shares of a smaller subsidiary company.

The norms also propose that the 'Offered Company' shall be a listed company which is engaged in a sector eligible to receive Foreign Direct Investment and follow all norms of FCCB and External Commercial Borrowings (ECB).

The promoter group company receiving such investments will not be permitted to utilise the proceeds for investments in the capital market or in real estate in the country.

The FCEB can also be invested by the issuing company overseas by way of direct investment including and also in Joint Ventures (JV) or Wholly Owned Subsidiaries.

The rate of interest payable on these bonds and the issue expenses incurred in foreign currency need to be within the cost ceiling as specified by Reserve Bank of India under the ECB policy.

The minimum maturity of the FCEB will be five years for purposes of redemption and the exchange option can be exercised at any time before redemption.


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