FCEB made easy

FCEB made easy

What is FCEB?

Foreign Currency Exchangeable Bond is

• a Bond expressed in freely convertible Foreign Currency
• Interest and Principal of which is payable in foreign Currency
• Issued by an Indian company
• To overseas Investor who subscribes in foreign Currency
• Which on a later date can be converted into Equity shares of Offered Company

What are all the Eligibility conditions?

• Prior approval of RBI to be obtained

• Eligibility Conditions for the Offered Company
  • Offered company is a Listed company
  • Offered company is engaged in a sector eligible to receive FDI
  • Offered Company is eligible to issue FCCB or ECB
• Eligibility Conditions for the Issuer Company
  • The issuer shall form part of the Promoter Group of the offered Company
  • Issuer holding Equity Shares offered at the time of Issuance of FCEB
  • Issuer Company is not restrained by SEBI to access securities market
• Eligibility Conditions for the Subscriber
  • Entity not prohibited by SEBI from dealing in Securities
  • Subscriber comply with FDI Policy
  • Subscriber adhere to sector caps at the time of issuance of FCEB
  • Prior approval of FIPB obtained , wherever required

How the proceeds can be utilized?

• Can be invested in Promoter Group Companies
• Issuer company can invest in overseas by way of direct investment in Joint ventures or Wholly owned subsidiaries subject to FEMA Guidelines
• Promoter Group Company can utilize it according to the End Use Requirements applicable for ECBs
• Promoter Group Company shall not utilize the proceeds for investing in capital market or Real estate in India.
• Proceeds can be retained or deployed overseas in accordance with ECB policy

Conditions for Issuance?

v Rate of interest

• Rate of interest payable on FCEB and issue expenses incurred in foreign currency shall be within the ceiling prescribed by RBI for ECBs.

v Price

• The exchange price of the offered listed equity shares at the time of issuance of FCEB shall not be less than the higher of the -:

The average of the weekly high and low of the closing prices of the

related shares quoted on the stock exchange during the

(a) six months preceding the relevant date;

OR

(b) two weeks preceding the relevant date.

Relevant date-Date in which Board of Directors' passed the resolution authorizing the issuance of FCEB.

preceding the relevant date.

v Maturity

• Minimum maturity shall be 5 years for redemption

• Before that time holder can convert into shares of Offered company

• While exercising the option holder has to take delivery of shares and cash settlement is not allowed.

v Approvals Required

• Board Approval

• Shareholders approval, if applicable

• Offered company's Board approval

• Issuer company shall disclose the shareholding of the offered company to comply with respective provisions in SEBI Act, Rules, Regulations & Guidelines

v Other Conditions

• Issuer company shall not trade or mortgage or offer as collateral or trade offered securities till redemption or Exchange

• Issuer company keep the offered shares free from all encumbrances

Taxation Aspects?

• Interest till exercise subject to TDS

• Tax on dividend subject to Sec 115 AC of Income Tax Act

• Exchange of Bonds into Equity shares will not give raise to Capital Gains for computation of taxable income

• Transfer between Person Resident outside India to another Person Resident outside India will not give raise to Capital Gains tax in India.

Notified by Ministry of Finance, Dept. of Economic Affairs on Feb. 15, 2008 vide http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/ExchangeableBonds.pdf