Issuing the final set of guidelines to operationalise the issuance of Foreign Currency Exchangeable Bond (FCEB) immediately, the Reserve Bank of India has said 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 India.
The proceeds of FCEB shall be retained and / or deployed overseas by the issuing / promoter group companies in accordance with the policy for the external commercial borrowing(ECB).
The promoter group companies receiving investments out of the FCEB proceeds has to utilise the amount in accordance with end-uses prescribed under the ECB policy, said RBI.
It will be the responsibility of the issuing company to ensure that the proceeds of FCEB are used by the promoter group company only for the permitted end-uses prescribed under the ECB policy. The issuing company should also submit audit trail of the end-use of the proceeds by the issuing company / promoter group companies to the Reserve Bank duly certified by the designated authorised dealer (AD) bank, said RBI which issued the final set of guidelines to operationalise FCEB on Tuesday.
The FCEB which may be denominated in any freely convertible foreign currency will have minimum maturity of five years. The exchange option can be exercised at any time before redemption. While exercising the exchange option, the holder of the FCEB shall take delivery of the offered shares. Cash (Net) settlement of FCEB shall not be permissible.
Explaining the modus operandi of FCEB RBI said that the bond is to be expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an issuing company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the offered company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments.
The issuing company shall be part of the promoter group of the offered company and shall hold the equity share/s being offered at the time of issuance of FCEB.
The offered company shall be a listed company, which is engaged in a sector eligible to receive foreign direct investment and eligible to issue or avail of FCCB or external commercial borrowings (ECB).
An Indian company, which is not eligible to raise funds from the Indian securities market, including a company which has been restrained from accessing the securities market by the SEBI shall not be eligible to issue FCEB. Also entities prohibited to buy, sell or deal in securities by the SEBI will not be eligible to subscribe to FCEB.
