Government allows companies to borrow abroad via exchangeable bonds

Mumbai: The government has allowed listed firms to raise funds overseas through issue of foreign currency exchangeable bonds (FCEBs) whose proceeds can then be used to fund operations abroad.

A company may issue these bonds only to foreign investors but the repayment could be made through offering equity in any firm within its group, the finance ministry said in a statement.

"The proceeds of the FCEB shall be retained and/or deployed overseas in accordance with the policy for the proceeds of external commercial borrowings," it said.

Receipts from the bonds could be used to fund the activities of any group company overseas but cannot be invested in local capital markets or in domestic real estate projects.

"The proceeds of FCEB can also be invested by the issuing company overseas by way of direct investment, including in joint ventures or wholly owned subsidiaries subject to the existing guidelines," it said.

Tax treatment and interest rates under overseas borrowing rules would apply for the new bonds, the ministry said.

The firms issuing FCEBs should, however, be operating in sectors where the government allows foreign direct investment or overseas borrowing, the statement said.

The bonds are expected to give companies more flexibility in raising money overseas, reduce risks for investors and possibly ease capital inflows that have stoked appreciation of the rupee.