Exchangeable bonds hit RBI roadblock

The exchangeable bonds (FCEBs) proposed by the government as an additional instrument for fund-raising by companies overseas may again be put on the backburner. While the government has already issued the required notification to make the scheme operational, the Reserve Bank of India (RBI) is still not in favour of the instrument.

Exchangeable bonds are instruments that allow a holding company or the parent company of a group to raise funds from the overseas market for use by any of the group companies. The bonds will then be converted into shares of the company for which funds were raised.

In the notification issued by the government, foreign currency exchangeable bonds (FCEB) are defined as a security offered by an issuing company and subscribed to by investors living outside India and exchangeable into equity shares of another company, which is called the offered company.

The issuing company has to be a part of the promoter group and has to hold the equity shares being offered at the time of issuing exchangeable bonds. The offered company has to be a listed company, which is engaged in a sector eligible to receive FDI and eligible for external commercial borrowings (ECBs

Read more in The Business Standard article.