FCEB Scheme Operationalised

In February this year, the Government (Ministry of Finance) had issued a notification introducing Foreign Currency Exchange Bonds (FCEBs) that offered Indian companies an additional avenue to raise finances from overseas. We had discussed the implications of FCEBs in a post at that time.

Now, the RBI has issued a circular operationalising the scheme paving the way for issuance of FCEBs. One issue that immediately commands attention is the minimum pricing for these bonds, which continue to follow the formula of the higher of (i) the average of the weekly high and low closing prices of the shares during the last 6 months and (ii) the average weekly high and low closing prices of the shares during the last 2 weeks. In declining market conditions as we have currently been witnessing, this can be an obstacle to the issue of instruments such as FCEBs.

On a separate matter, although relaxations have been made from minimum pricing norms in the case of qualified institutional placements, these restrictions continue to operate (at least as of now) in the case of FCCBs and FCEBs. For a discussion on current implications of the minimum pricing norms, see this discussion on MoneyControl.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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