Mumbai: The Reserve Bank of India, or RBI, is likely to set rules for foreign currency exchangeable bonds, or FCEBs, within a month, giving companies more options to raise money abroad.
“The government and RBI have been in discussions (on this matter) for the past few weeks and the guidelines can be expected very soon,” said an RBI official, who did not want to be named.
FCEBs are similar to foreign currency convertible bonds, or FCCBs, that allow firms to raise money by issuing bonds. However, unlike FCCBs, where the bonds can be converted into equity shares of the issuing company, FCEBs can be converted into shares of a group company of the issuer.
FCEBs will provide another way for Indian companies to raise capital overseas, besides external commercial borrowings, or ECBs, and FCCBs.
The government had notified the scheme in February this year. Any Indian company not eligible to raise funds from the domestic market will not be eligible to issue FCEBs, the notification had said. The rate of interest payable on FCEBs and the expenses in foreign currency of the bond issue will be the same as the cost ceiling RBI specifies for ECBs.
While funds raised through FCEBs cannot be invested in capital markets and real estate in India, companies will be able to use the money for overseas operations. All categories of investors can subscribe to FCEBs.
Finance minister P. Chidambaram had signalled the government’s move to implement FCEBs, saying it will put in place a mechanism to unlock a part of holding in group companies to meet financial needs by issuing exchangeable bonds.