The finance ministry, late on Friday, unlocked another foreign-funds route for India Inc.
FCEB scheme allows firms to unlock holding in group cos
MUMBAI: The finance ministry, late on Friday, unlocked another foreign-funds route for India Inc.
It announced the Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008, as “an enabling mechanism to permit Indian companies to unlock a part of holding in group companies for meeting their financing requirements.”
The norms are similar to those extant for foreign currency convertible bonds (FCCBs) but there’s a crucial difference: a holding company can issue bonds tied to the shares of a smaller company.
The bonds can be converted into shares after a minimum of five years from the date of issue.
The issuer company should be part of the same group and must own shares of the entity that is floating bonds to raise cash.
But proceeds from such a sale can be invested throughout the group, in joint ventures or even subsidiaries overseas.
DD Rathi, chief financial officer at cement giant Grasim Industries, said the instrument gives companies the opportunity to use the future upside potential of stocks.
“It’s comparable to FCCBs with the only noticeable difference being that here the underlying security would be a share of a third company. The investors can monetise it within five years but a company can also decide a put and call option which can be exercised before five years,” Rathi said.
Sanjay Aggarwal, national industries director, financial services, at accounting giant KPMG, said this is a good step.
“Indian businesses require significant amount of growth capital over the next few years for both domestic and global expansions. Overseas funds will be necessary in addition to domestic capital markets. With global interest rates on the lower side, long-term funds appear attractive albeit with exchange risks.”
Aggarwal said unlocking value for shareholders by way of an IPO after a few years of business, rather than an early float, is an
attractive option for a certain class of investors in a growing economy.
The only drawback is that capital raised through FCEBs would still come under the stringent external commercial borrowings (ECBs) and foreign direct investment (FDI)norms — because it would be investments by foreign investors or companies.
r_joel@dnaindia.net
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