Foreign Currency Convertible Bonds Legal Parameters vis-à-vis the Economic Trends

It is a type of bond issued by a company in a currency other than the issuer’s domestic currency. The bond can be converted into the issuer’s domestic currency or into equity shares of the issuer at a predetermined conversion price. FCCBs are often used by companies as a way to raise capital from international investors. They can be attractive to investors because they offer the potential for capital appreciation if the issuer’s domestic currency appreciates relative to the currency in which the FCCB is issued, as well as the potential for income from the bond’s coupon payments.

• Ø Redemption- Redemption on maturity – Unless previously redeemed or purchased by the company, the bonds are redeemed at par on the expiry of a pre-determined period from the date of the allotment.
• Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity.
• The full form of FCCB in the context of banking is “foreign currency convertible bond.” As mentioned in my previous response, an FCCB is a type of bond that can be converted into the issuing company’s stock at a predetermined conversion price.
• Also, these bonds have lower interest rates than regular bonds because FCCBs are convertible into equity.

The carotid baroreceptors are specialized pressure receptors located in the walls of the carotid arteries. These receptors are responsible for detecting changes in blood pressure and transmitting this information to the brain via the vagus nerve. The brain then uses this information to adjust various physiological responses in order to maintain blood pressure within a normal range.

How Foreign Currency Convertible Bonds Works?

This circular will stand withdrawn on July 1, 2010 and will be replaced by an updated Master Circular on the subject.

Ø Redemption- Redemption on maturity – Unless previously redeemed or purchased by the company, the bonds are redeemed at par on the expiry of a pre-determined period from the date of the allotment. Put Option- When the Bondholder redeems the bonds after expiry of a certain period commencing from the date of allotment, he is said to exercise the Put Option. Call Option- When the company purchases the bonds from the bondholders at discount, par or premium in the open market or otherwise, the company is said to exercise its Call Option. If the FCCB issue is up to USD $750 million for refinancing existing outstanding FCCB, it will be available under the automatic approval route. In case of partial conversion of outstanding ECB into equity, borrowers are required to report the converted portion in form FC-GPR to the Regional Office concerned as well as in form ECB-2 clearly differentiating the converted portion from the unconverted portion. The words “ECB partially converted to equity” should be indicated on top of the ECB-2 form.

What are the Benefits of Foreign Currency Convertible Bond (FCCB)

The designated AD bank has general permission to make remittances of instalments of principal, interest and other charges in conformity with ECB guidelines issued by Government / Reserve Bank from time to time. Prepayment of ECB up to USD 500 million may be allowed by the AD bank without prior approval of Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan. The all –in- cost ceilings have been dispensed with until December 31,2009. Accordingly, eligible borrowers, proposing to avail ECB beyond the permissible all in cost ceiling specified at para 1 may approach RBI under approval route .This relaxation in all in cost ceilings will be reviewed in December 2009. American Depository Receipts means a security issued by a Bank or a depository in United States of America against underlying rupee shares of a company incorporated in India. F) GDR/ADR/FCCBs issue is likely to exceed the percentage limits under the automatic route, or implementing a project falling under approval route, issuing company required to obtain prior FIPB and Ministry of Finance Approval.

Preference shares (i.e. non-convertible, optionally convertible or partially convertible) for issue of which, funds have been received on or after May 1, 2007 are considered as debt. Eligible borrowers, recognised lenders, amount and maturity, https://1investing.in/ end- use stipulations, etc. shall apply. Since these instruments would be denominated in Rupees, the Rupee interest rate will be based on the swap equivalent of Libor plus the spread as permissible for ECBs of corresponding maturity.

Ø Public issue of FCCBs shall be only through reputed lead managers in international capital market. In case of private placement, the placement shall be with banks, or with multilateral and bilateral financial institutions, or foreign collaborators, or foreign equity holder having a minimum holding of 5% of the paid up equity capital of the issuing company. FCCBs offer investors the opportunity to earn a fixed rate of interest on their investment while also having the potential to participate in the appreciation of the issuer’s stock.

Eligibility to Issue Foreign Currency Convertible Bond (FCCB)

A foreign currency convertible bond is a type of bond issued in a foreign currency by a company that gives the holder the option to convert the bond into shares of the issuing company at a predetermined conversion price. FCCBs are typically issued by companies seeking to raise capital in foreign currency markets, and they can be an attractive option for investors who want the potential for capital appreciation through the conversion feature, as well as the potential for income through interest payments. The full form of FCCB in the context of banking is “foreign currency convertible bond.” As mentioned in my previous response, an FCCB is a type of bond that can be converted into the issuing company’s stock at a predetermined conversion price. FCCBs are typically issued by companies that are seeking to raise capital from international investors and are denominated in a foreign currency.

AD banks shall not approve trade credit exceeding USD 20 million per import transaction. Iv) the funds used for the buyback shall be out of internal accruals, to be evidenced by Statutory Auditor and designated AD Category – I bank’s certificate. Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB by such entities will be considered under the Approval Route.

Infrastructure sector for the purpose of ECB is defined as power, telecommunication, railways, road including bridges, sea port and airport, industrial parks, urban infrastructure and mining, refining and exploration. Emphasis supplied-the ultimate application of the funds raised by the body corporate through the FCCB issue. Filing of information with the RBI within 30 days from the issue date including total amount of the Bonds issued, names of the investors resident outside India and the amount repatriated to India supported by Foreign Inward Remittance Certificates as provided by Notification FEMA No. 120 i.e. The Foreign Exchange Management Regulations, 2004, under Part III – Investments in Foreign Securities other than by way of Direct Investment.

What are the Features of Foreign Currency Convertible Bond (FCCB)

Advantage of both debt and equity – the investor at the start could invest through the bonds and later if the dividends are more can convert into the equity shares. Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, 1993 (“Scheme”) – the rule was introduced vide a notification to provide global capital market access through the issue of FCCB to the Indian corporate sector and wider the scope of finances. The nature of the FCCB is hybrid as it is typically a mix of both debt and equity. Typically, FCCB is equity-linked debt & could be converted into stocks after a specific period.

The buyback will not have any effect on the bond holders not opting for the buyback or on the non-participating bond holders of companies opting for the buyback. Iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short-term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB shall apply. Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end-uses.

FCCBs may have a fixed or floating conversion price, which is determined based on the market value of the underlying shares at the time of conversion. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.

If the price of the stock is below the conversion price at the time of the conversion, then the bond will not be converted. FCCBs offer investors the potential for both income from the bond’s interest payments and the potential for appreciation if the issuing company’s stock price increases. However, FCCBs also carry additional risks, such as exchange rate risk, as the value of the bond may be affected by changes in the exchange rate between the foreign currency and the investor’s domestic currency. The choice of security to be provided to the lender/supplier is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 20/RB-2000 dated May 3, 2000, respectively, as amended from time to time.

These corporate bonds are sometime issued as convertible bonds with the option of being converted to equity. Bonds carrying such optionality element attract the investors making debt investment in the bonds issuing entity. A bond that can be converted into a fixed amount of the company’s equity is usually done at the discretion of the bondholder.

Role of SEBI – Pre-issue and Post-issue requirements & Conditions to be

The amount received from the issue of FCCB should be utilised as per the guidelines of External Commercial Borrowing . The functional curve of the carotid baroreceptors is important because it helps to regulate blood pressure within a normal range. When blood pressure falls below a certain level, the activity of the baroreceptors increases, leading to an increase in heart rate and blood vessel constriction. Conversely, when blood pressure is too high, the activity of the baroreceptors decreases, leading to a decrease in heart rate and blood vessel dilation. The Full Form of FCCB in Medical is functional curve of carotid baroreceptor.

Foreign Exchange Management Act, 1999 defines foreign currency under section 2 as foreign currency means any currency other than the Indian currency. Hence, the FCCBs have yet again proved to be an economic-financial rescue means by propping up the budget airline especially as the markets sloth adds to its undesirable and downbeat performance. Ø Investment in real-industrial sector including SMEs fccb meaning and infrastructure sector through expansion, modernization, import of capital goods, new projects etc. The ECB Master Circular lays down that borrowing funds through FCCB issue can be accessed under two routes, viz., FCCBs Issue upto US $ 500 million under the Automatic Route FCCBs Issue beyond US $ 500 million with the specific approval of the Reserve Bank i.e. under the Approval Route.

Financial institutions dealing exclusively with infrastructure or export finance such as IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank are considered, on a case by case basis. The FCCBs bought back / repurchased from the holders must be cancelled and should not be re-issued or re-sold. The period of such pledge shall be co-terminus with the maturity of the underlying ECB. Premature buyback of FCCBs , subject to compliance with the terms and conditions detailed in Para A ibid. Overseas organizations and individuals complying with following safeguards may provide ECB to Non-Government Organizations engaged in micro finance activities.