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Investor Guide

Foreign Currency Exchangeable Bonds

Release On Thursday, April 10, 2008   Download Pdf

Foreign Currency Exchangeable Bonds

The Indian government has recently introduced a new scheme known as Issue of Foreign Currency Exchangeable Bonds Scheme, 2008 (the scheme) to be issued by Indian companies in the global market to obtain funds for various purposes.

The major difference between foreign currency convertible bonds (FCCBs) and FCEBs is that FCCBs can be converted to the equity of the issuing firm. In the case of FCEBs, bonds can be converted into equity of a group company. As a result, payment of interest on FCEB would be subject to payment of withholding tax.

Conditions for issue of foreign currency exchangeable bonds

The guidelines allow FCEBs to be issued by companies forming part of conglomerates to unlock some of their investments in group companies and to raise the funds required.

The issuing company should be part of the promoter group of the offered company and shall hold the equity shares being offered at the time of issuance of the bonds.

The offered company should be a listed company which is engaged in a sector eligible to receive foreign direct investment and eligible to issue or avail of FCCBs or external commercial borrowings (ECBs).

Entities which are prohibited to buy, sell or deal in securities by the Securities and Exchange Board of India are not eligible to subscribe to these bonds.

Procedure for issuance of FCEB

Prior approval of the Reserve Bank of India is required for issuance of the said bonds and also of the Foreign Investment Promotion Board should be obtained. The bonds can be denominated in any freely convertible currency....

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