FCEBs – Understanding a new debt instrument

The finance minister, in his 2007-2008 Budget speech, promised a mechanism for Indian companies to unlock a part of their holding in group companies to meet financing needs by issuing exchangeable bonds. This led to the formulation of the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008, in February. The scheme was operationalized pursuant to a Reserve Bank of India (RBI) circular dated 23 September, to facilitate the issuance of foreign currency exchangeable bonds (FCEBs).

Previously, Indian companies had the option of raising foreign currency debt by either raising external commercial borrowings (ECBs), or issuing foreign currency convertible bonds (FCCBs) convertible into shares. The scheme has now opened the doors for Indian companies to explore a third option through the issuance of FCEBs.

FCEBs have been defined as 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”.

Shardul Shroff is the managing partner, Dharini Mathur is a prinipal associate and Rahul Singh is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co.