This document summarizes key changes affecting foreign investment in India through foreign currency convertible bonds (FCCBs). [1] It outlines terms and conditions for buyback/prepayment of FCCBs issued under the automatic and approval routes of ECB guidelines. [2] FCCBs can be bought back before March 31, 2012 subject to minimum discount rates of 8-20% depending on redemption value. [3] Funds for buyback must come from existing foreign currency holdings or new ECB in line with current norms.

1. Investor Focus
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Key changes effecting inflow and outflow of Foreign Investment in India
July 2011

2. BUYBACK/PREPAYMENT OF FCCBS Terms and conditions for FCCBs issued under Approval Route of
the ECB Guidelines
Foreign Currency Convertible Bonds (FCCBs) mean a bond issued by
an Indian company expressed in foreign currency, and the principal and i) minimum discount of 10 per cent of book value for redemption value
interest in respect of which is payable in foreign currency. Further, the up to USD 50 million;
bonds are required to be issued in accordance with the scheme viz., ii) minimum discount of 15 per cent of book value for the redemption
"Issue of Foreign Currency Convertible Bonds and Ordinary Shares value over USD 50 million and up to USD 75 million; and
(Through Depositary Receipt Mechanism) Scheme, 1993”, and iii) minimum discount of 20 per cent of book value for the redemption
subscribed by a non-resident in foreign currency and convertible into value of over USD 75 million and up to USD 100 million.
ordinary shares of the issuing company in any manner, either in whole,
or in part, on the basis of any equity related warrants attached to debt
instruments. The ECB policy is applicable to FCCBs. The issue of
FCCBs is also required to adhere to the provisions of Notification FEMA
No. 120/RB-2004 dated July 7, 2004, as amended from time to time.
Such FCCBs can also be buyback under automatic and approval route
before 30 June 2011 subject to issuer complying with certain
conditions. The above existing policy on the premature buyback of
FCCBs has been reviewed and further period till 31 March 2012 have
been allowed and to further liberalise the procedure. As per the new
policy the applications for buyback of FCCBs by Indian companies, will
be considered as detailed hereunder:
Contributed by CA. Sudha G. Bhushan
Terms and conditions for FCCBs issued under Automatic Route of
the ECB Guidelines
1. the buyback value of the FCCB shall be at a minimum discount
of 8 per cent on the book value;
2. the funds used for the buyback shall be out of existing foreign
currency funds held either in India (including funds held in
the EEFC account) or abroad and / or out of fresh ECB raised
in conformity with the current ECB norms; and
3. where the fresh ECB is co-terminus with the outstanding
maturity of the original FCCB and is for less than three years
the all-in-cost ceiling should not exceed 6 months Libor plus
200 bps as applicable to short term borrowings. In other cases,
the all-in-cost for the relevant maturity of the ECB, as laid down
in present ECB guidelines.
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3. FEMA Team at Taxpert Professionals
CA. Sudha G. Bhushan [B’com (H); F.C.S; A.C.A]
CS. Rushabh Doshi [C.S, L.L.B; M.B.A]
CA. Abhijeet Joshi [B’com, A.C.A}
CS. Hemant Shah [C.S, L.L.B]
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Contributed by CA. Sudha G. Bhushan
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