What changed
RBI has operationalised the Government of India's 'Issue of Foreign Currency Exchangeable Bonds Scheme, 2008' via this circular. It provides detailed eligibility criteria for issuers, offered companies, and subscribers, along with end-use restrictions, pricing rules, and maturity requirements. This formalises a new instrument for raising foreign currency funds linked to equity exchange.
What it means for you
Indian banks acting as authorised dealers can now facilitate FCEB issuances, expanding cross-border financing options for promoter groups. The scheme links foreign currency borrowing to equity of listed group companies, offering an alternative to FCCBs and ECBs. Banks must ensure compliance with FDI caps, ECB all-in-cost ceilings, and end-use restrictions, particularly prohibiting capital market or real estate investments by recipient promoter group companies.
What you must do
- Verify that the issuing company is part of the promoter group of a listed offered company and holds the equity shares at issuance.
- Ensure the offered company is listed, eligible for FDI, and can issue FCCB or ECB.
- Check subscriber eligibility under FDI policy, including sectoral caps and FIPB approval if required.
- Confirm FCEB proceeds end-use complies with ECB policy for promoter group companies and overseas investment guidelines for the issuer.
- Enforce minimum 5-year maturity, pricing based on 6-month and 2-week average share prices, and no cash settlement on exchange.
Who it affects
Category-I Authorised Dealer Banks, Indian promoter group companies seeking foreign currency funding, Listed companies eligible as offered companies under FCEB, Foreign investors subscribing to FCEB
What is a Foreign Currency Exchangeable Bond (FCEB)?
An FCEB is a foreign currency-denominated bond issued by an Indian promoter group company, subscribed by non-residents, and exchangeable into equity shares of another listed group company (the offered company). Principal and interest are payable in foreign currency.
What are the key end-use restrictions for FCEB proceeds?
The issuing company can invest proceeds overseas via direct investment or into promoter group companies. Promoter group companies receiving such funds must follow ECB end-use norms and cannot use proceeds for capital market or real estate investments in India.
What is the minimum maturity and pricing rule for FCEB?
Minimum maturity is five years. The exchange price must be at least the higher of the average weekly high-low closing price of the offered company's shares over the preceding six months or the preceding two weeks.