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Foreign Currency Convertible Bond or FCCB

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Foreign Currency Convertible Bond or FCCB

Foreign Currency Convertible Bonds or FCCBs are issued according to the scheme for issuing FCCBs as well as Ordinary Bonds by Depository Receipt Mechanism Scheme of 1993, and get subscribed by a Non Resident in foreign coins and transferable into usual shares of issuing organization in the way, either in total, or in part, on basis of an equity linked warrant attached to the debt devices.

Eligibility for issuing common shares or convertible bonds of issuing organization is mentioned below:

  • The issuing organization eager to raise its foreign funds through issuing FCCBs or common shares for equity issue through GDRs
  • May issue Foreign Currency Convertible Bonds up to 50 million USD under automated route
  • From 50 million USD to 100 million USD, the organizations need to have consent from RBI
  • From 100 million USD and more, prior consent from the Department of Economics Affairs, Government of India is needed.

Preference Shares

Foreign investments denote investments in capital of an India-based organization and capital denotes the equity shares, preference share as well as transferable debentures:

  • Overseas investments or foreign investments by preference shares is linked as the Foreign Direct equities for sect oral caps on the foreign equities where these caps are recommended, but they need to carry an option of conversion. Preferential shared designed without this conversion choice doesn’t fall under foreign direct equity caps
  • Is taken as a part of share-capital and doesn’t fall under External Commercial Borrowing or ECB instructions

The route, be it Government or automated body, permission depends on the activities or the industry of the organization.

The tenure of conversion may be according to the highest limit recommended in the Company Act or what’s being agreed upon in the shareholders’ agreement, whichever is lesser.

The rate of dividends shall not surpass the upper cap recommended by the Finance Ministry.

Issuing of preferential shares must match the instruction recommended by the RBI and SEBI and other constitutional needs.

Foreign Direct Investment in SSI Units

Small scale units or SSI units can’t have over 24% equity in the paid up capital from an industrial undertaking, either domestic or foreign. Should the equity from another organization included of foreign equities surpasses 24%, even if investments in the industrial plants and machines in that unit doesn’t surpass 10 million INR, the unit is likely to lose the small-scale profile and may need an industrial license to produce goods reserved for the small scale industries. Foreign Direct Investment in these units may need prior permission from the Government of India, if the Foreign Direct Investment surpasses 24 percent.

Foreign Direct Investment on the Account of Import Payable

Foreign Direct Investment inflows are needed to be followed the below-mentioned modes:

  1. By internal remittances by usual banking channels or
  2. By debt to FCNR or NRE account of individual concerned kept in an approved dealer or approved bank.

Issuing equities to the Non Residents against other ways of Foreign Direct Investment inflows or in kind may not be permitted, excluding issuing of equity share against huge amount as fee and royalties payable for the technical collaboration as well as ECBs in transferrable foreign coins that are allowed under automated route subject to fulfilling every applicable tax liability and industry specific regulations.

Related Topics:

  • Indian Foreign Direct Investment Policy

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