The Hindu Business Line : FCCB floatation norms tightened

IN a continuation of its efforts to discourage capital inflows in view of the surge in foreign exchange reserves, the Finance Ministry has made it tougher for corporates to access funds through the foreign currency convertible bonds (FCCB) route.

In its latest revision to the scheme for issue of FCCB and ordinary shares (through depository receipts mechanism), the Ministry has prescribed a reduction in the maximum spreads (over six months LIBOR) for FCCB offerings by a uniform 50 basis points.

The maximum spreads (all-in cost) for normal projects has been slashed from 200 to 150 basis points, while being reduced from 300 to 250 basis points and from 350 to 300 basis points for infrastructure and long-term projects, respectively.

Further, it has mandated that FCCBs exceeding $50 million would be permitted only for financing import of equipment and meeting foreign exchange needs of infrastructure projects. No financial intermediary, including banks, developmental financial institutions or non-bank financial company, will be allowed access to FCCBs or to provide guarantees. The FCCB sums pending utilisation will also have to be parked overseas.

In case of FCCB floatation for meeting rupee expenditure under automatic route, the Finance Ministry has made hedging compulsory, unless there exists a `natural hedge' in the form of uncovered foreign exchange receivables to be ensured by authorised dealers.

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