Loan from a foreign body corporate

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Can but it is subject to ECB guidelines...all the norms applicable for ECBs, viz. eligible borrowers, recognised lenders, amount and maturity, end use stipulations, etc. would apply.

Compulsory Convertible Debentures only exempted from the purview of ECB.

 

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Can but it is subject to ECB guidelines...all the norms applicable for ECBs, viz. eligible borrowers, recognised lenders, amount and maturity, end use stipulations, etc. would apply.

Compulsory Convertible Debentures only exempted from the purview of ECB.

 

Thanks for the feedback Mr.Manivannan... 

ECB Guidelines are quite strict...one cannot use ECB Proceeds for working capital or general business purpose.. So Company is left with issuing Equity shares or CC Preference shares or CC Debentures??

Is there no other way?

Under ECB guideline only FCCB and FCEB can be issued no any debenture can be issued

These all are ECB's:

 Forms of ECB: The ECB Framework enables permitted resident entities to borrow from recognized non-resident entities in the following forms:

  1. Loans including bank loans;

  2. Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures);

  3. Buyers’ credit;

  4. Suppliers’ credit;

  5. Foreign Currency Convertible Bonds (FCCBs);

  6. Financial Lease; and

  7. Foreign Currency Exchangeable Bonds (FCEBs)

Who says sr. no.1 to 4 & 6 are Forms of ECB?

RBI FAQ on ECB says so..

Below is link

https://rbi.org.in/scriptts/FAQView.aspx?Id=120#q6

 

Go  through RBI/FED/2015-16/ FED Master Direction No.5/15-16 dt. 1 January 2016 and why Buyers and Suppliers Credit and Debentures are approved as Form of ECB.

 if foreign citizen interested to lend debt with conversion option to Pvt. Ltd. Co, will it come under ECB??

For borrowing under ECB,ECB guideline needs to be followed.So interest of the investors or lenders is not imporatant for that.

If the conversion option is compulsory then it exempted from the purview of ECB, otherwise be treated as ECB only.

 

Non-convertible/ optionally convertible/ partially convertible preference shares issued after April 30, 2007 and optionally convertible/ partially convertible debentures issued after June 7, 2007 shall be treated as debt and shall require conforming to External Commercial Borrowings guidelines regulated under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange Regulations), 2000, as amended from time to time.

The Reserve Bank of India (RBI) has rejected a proposal of the Department of Industrial Policy and Promotion (DIPP) to allow optionally convertible debentures or preference share as part of foreign direct investment (FDI). Optionally convertible instruments, where pricing is decided on a future date (based on certain milestones), protect investors from upward or downward risk and, therefore, should be treated as debt rather than pure equity.

If we issue mandatory convertible debentures than does it requires valuation by CA??

In debenture subscripttion agreement do we need to mention the conversion price?? or can we say at time of conversion the valuation will be done..and the conversion price will be calcualted accordingly..

The valuation is must. The extract of the FEMA master circular is reproduced as below for your ready reference:

In case of convertible capital instruments, the price/ conversion formula of the instrument is required to be determined upfront at the time of issue of the instrument. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations.


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