Issue
of Foreign Currency Exchangeable Bonds Scheme, 2008
The Central
Government hereby notifies the following scheme for facilitating issue of
Foreign Currency Exchangeable Bonds by Indian Companies, namely :—
1. Short title and commencement.—(1) This scheme may
be called the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008.
(2) It
shall come into force on the date of notification in the Official Gazette.
2. Definitions.—In this scheme, unless the
context otherwise requires,—
(a)
“Foreign Currency Exchangeable Bond” means a bond 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.
(b)
“Issuing Company” means an Indian company as defined in the Companies Act, 1956
(1 of 1956), which is eligible to issue Foreign Currency Exchangeable Bond.
(c)
“Offered Company” means an Indian company as defined in the Companies Act, 1956
(1 of 1956) whose equity share/s shall be offered in exchange of the Foreign
Currency Exchangeable Bond.
(d)
“Promoter Group” has the same meaning as defined in the Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000.
3. Eligibility Conditions and
subscription of Foreign Currency Exchangeable Bonds.—(1) 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 Foreign
Currency Exchangeable Bond.
(2) 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 Foreign
Currency Convertible Bond or External Commercial Borrowings.
(3) 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 Securities and Exchange Board of India shall not be
eligible to issue Foreign Currency Exchangeable Bond.
(4) The
subscriber to the Foreign Currency Exchangeable Bond shall comply with the
Foreign Direct Investment policy and adhere to the sectoral caps at the time of
issuance of Foreign Currency Exchangeable Bond. Prior approval of Foreign
Investment Promotion Board, wherever required under the Foreign Direct
Investment policy, should be obtained. Entities prohibited to buy, sell or deal
in securities by Securities and Exchange Board of India will not be eligible to
subscribe to Foreign Currency Exchangeable Bond.
4. End-use requirements.—(1) The proceeds of
Foreign Currency Exchangeable Bond may be invested by the issuing company in
the promoter group companies. The promoter group company receiving such
investments shall be required to use the proceeds in accordance with end uses
prescribed under the External Commercial Borrowings policy. The promoter group
company receiving such investments will not be permitted to utilize the
proceeds for investments in the capital market or in real estate in India.
(2) The
proceeds of Foreign Currency Exchangeable Bond may be invested by the issuing
company overseas by way of direct investment including in Joint Ventures or
Wholly Owned Subsidiaries subject to the existing guidelines on Indian Direct
Investment in Joint Ventures or Wholly Owned Subsidiaries abroad.
5. Operational Procedure.—(1) Prior approval
of the Reserve Bank of India shall be required for issuance of Foreign Currency
Exchangeable Bond.
(2) The
Foreign Currency Exchangeable Bond may be denominated in any freely convertible
foreign currency.
6. Pricing and Maturity.—(1) The rate of
interest payable on Foreign Currency Exchangeable Bond and the issue expenses
incurred in foreign currency shall be within the all in cost ceiling as
specified by Reserve Bank of India under the External Commercial Borrowings
policy.
(2) At
the time of issuance of Foreign Currency Exchangeable Bond the exchange price
of the offered listed equity shares shall not be less than the higher of the
following two :
(i) The average of the weekly high and low
of the closing prices of the shares of the offered company quoted on the stock
exchange during the six months preceding the relevant date; and
(ii) The average of the weekly high and low
of the closing prices of the shares of the offered company quoted on a stock
exchange during the two week preceding the relevant date.
Explanation :—For the purpose of this
sub-scheme, “relevant date” means, the date on when the Board of the issuing
company passes the resolution authorizing the issue of Foreign Currency
Exchangeable Bond.
(3) The
minimum maturity of the Foreign Currency Exchangeable Bond shall be five years
for purposes of redemption. The exchange option can be exercised at any time
before redemption. While exercising the exchange option, the holder of the
Foreign Currency Exchangeable Bond shall take delivery of the offered shares.
Cash (Net) settlement of Foreign Currency Exchangeable Bonds shall not be
permissible.
7. Mandatory
Requirements.—(1)
The Issuing Company shall comply with the provisions of the Companies Act, 1956
(1 of 1956) and obtain necessary approvals of its Board of Directors and
shareholders if applicable. The Offered Company shall also obtain the approval
of its Board of Directors in favour of the Foreign Currency Exchangeable Bond
proposal of the issuing company.
(2) The
Issuing Company intending to offer shares of the offered company under Foreign
Currency Exchangeable Bond shall comply with all the applicable provisions of
the Securities and Exchange Board of India Act, Rules, Regulations or
Guidelines with respect to disclosures of their shareholding in the Offered
Company.
(3) The
Issuing Company shall not transfer, mortgage or offer as collateral or trade in
the offered shares under Foreign Currency Exchangeable Bond from the date of
issuance of the Foreign Currency Exchangeable Bond till the date of exchange or
redemption. Further, the Issuing Company shall keep the offered shares under
Foreign Currency Exchangeable Bond free from all encumbrances from the date of issuance of
the Foreign Currency Exchangeable Bond till the date of exchange or redemption.
8. Retention
and deployment of proceeds of Foreign currency exchangeable Bond.— The proceeds of the
Foreign Currency exchangeable Bond shall be retained and/or deployed overseas
in accordance with the policy for the proceeds of External Commercial
Borrowings.
9. Taxation
on Exchangeable Bonds.—(1) Interest payments on the bonds, until the exchange option
is exercised, shall be subject to deduction of tax at source as per the
provisions of sub-section (1) of section 115 AC of the Income-tax Act, 1961 (43
of 1961).
(2) Tax
on dividend on the exchanged portion of the bond shall be in accordance with
the provisions of sub-section (1) of section 115 AC of the Income-tax Act, 1961
(43 of 1961).
(3)
Exchange of Foreign Currency Exchangeable Bonds into shares shall not give rise
to any capital gains liable to income-tax in India.
(4)
Transfers of Foreign Currency Exchangeable Bonds made outside India by an
investor who is a person resident outside India to another investor who is a
person resident outside India to another investor who is a person resident
outside India shall not give rise to any capital gains liable to tax in India.
[F.
No. 4/21/2006-ECB]