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The Tax Publishers CLARIFICATION 5 Fresh guidelines for Euro issuesSource : Press Note, dt. 20-6-1996 [Issued by the Department of Economic Affairs, Ministry of Finance, New Delhi, dt. 20-6-1996.] 1. A Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary, Shares (Through Depository Receipt Mechanism) was notified by the Government of India in November 1993. Revisions/modifications in the operative guidelines for Euro Issues are announced from time to time. 2. On the basis of the periodic review and assessment of the current situation, the following Euro Issue guidelines, in continuation of the notification of November 1993, shall come into effect for approvals granted on, or after the date of issue of these guidelines, in supersession of all the previous guidelines on the subject. Trackrecord : 3. An issuing company seeking permission for raising foreign funds by Euro Issues having a consistent track record of good performance (financial or otherwise) for a period of three years shall be allowed to issue GDRs/FCCBs. 4. In view of the importance of the infrastructure project, and the need to encourage equity financing of such projects, the three-year track record requirement would be relaxed in the case of companies seeking GDR/FCCB issues to finance investments in infrastructure industries such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads. Approvals : 5. Euro Issues shall be treated as direct foreign investment (subject to extant policies governing direct foreign investments) in the issuing company. Accordingly, a company which is implementing projects not predominantly contained in Annexure III of the New Industrial Policy of 1991, or a company which undertakes a project contained in Annexure III but whose direct foreign investment after the proposed Euro-Issue is likely to exceed 51 per cent of the post-issue subscribed capital, will need to obtain prior FIPB clearance before final approval to the Euro-Issue is given by the Finance Ministry. Number of issues : 6. Some restrictions had been imposed previously on the number of issues that could be floated by an individual company or a group of companies during a financial year. There will henceforth be no restrictions on the number of Euro-Issues to be floated by a company or a group of companies in a financial year. End-use : GDRs : 7. In relaxation of earlier guidelines, GDR end-uses will include -- -- financing capital goods imports; -- capital expenditure including domestic purchase/installation of plant, equipment and buildings and investments in software development; -- pre-payment of scheduled repayment of earlier external borrowings; -- investments abroad where these have been approved by competent authorities; -- equity, investment in JMS/WOSs in India. 8. However, investments in stock markets and real estate will not be permitted. 9. Within this framework, GDR raising companies will be allowed full flexibility in deploying the proceeds. 10. Up to a maximum of 25 per cent of the total proceeds may be used for general corporate restructuring, including working capital requirements of the company raising the GDR. 11. However, banks, FIs, and Non-banking Finance Companies (NBFCs) registered with RBI will be eligible for GDR issues without reference to the end-use criteria mentioned in paras 7 to 10 above with the restriction that investments in stock markets and real estate will not be permitted. 12. A company shall be required to specify the proposed end-uses of the issue proceeds at the time of making their application, and will be required to submit quarterly statement of utilisation of funds for the approved end-uses, duly certified by their auditors. End-use-FCCBs : 13. Currently, companies are permitted to access foreign capital market through Foreign Currency Convertible Bonds for the restructuring of external debt which helps to lengthen maturity and soften terms, and for end-use of funds which conform to the norms prescribed by the government for External Commercial Borrowings (ECBs) from time to time. In addition to these, not more than 25 per cent of FCCB issue proceeds may be used for general corporate restructuring including working capital requirements. FCCB pricing : 14. FCCBs are available and accessible more freely as compared to external debt, and the expectation of the government is that FCCBs should have a substantially finer spread than ECBs. Accordingly, the all in cost for FCCBs should be significantly, better than the corresponding debt instruments (ECBs). 15. Companies will not be permitted to issue warrants along with their Euro-Issue. Repatriation of proceeds : 16. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end-uses. Validity : 17. Both the in-principle and final approvals will be valid for three months from the date of their respective issue. Review : 18. The policy and guidelines for Euro-Issues will be subject to review periodically. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers
CLARIFICATION 5
Fresh guidelines for Euro issuesSource : Press Note, dt. 20-6-1996 [Issued by the Department of Economic Affairs, Ministry of Finance, New Delhi, dt. 20-6-1996.]

1. A Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary, Shares (Through Depository Receipt Mechanism) was notified by the Government of India in November 1993. Revisions/modifications in the operative guidelines for Euro Issues are announced from time to time.

2. On the basis of the periodic review and assessment of the current situation, the following Euro Issue guidelines, in continuation of the notification of November 1993, shall come into effect for approvals granted on, or after the date of issue of these guidelines, in supersession of all the previous guidelines on the subject.

Trackrecord :

3. An issuing company seeking permission for raising foreign funds by Euro Issues having a consistent track record of good performance (financial or otherwise) for a period of three years shall be allowed to issue GDRs/FCCBs.

4. In view of the importance of the infrastructure project, and the need to encourage equity financing of such projects, the three-year track record requirement would be relaxed in the case of companies seeking GDR/FCCB issues to finance investments in infrastructure industries such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads.

Approvals :

5. Euro Issues shall be treated as direct foreign investment (subject to extant policies governing direct foreign investments) in the issuing company. Accordingly, a company which is implementing projects not predominantly contained in Annexure III of the New Industrial Policy of 1991, or a company which undertakes a project contained in Annexure III but whose direct foreign investment after the proposed Euro-Issue is likely to exceed 51 per cent of the post-issue subscribed capital, will need to obtain prior FIPB clearance before final approval to the Euro-Issue is given by the Finance Ministry.

Number of issues :

6. Some restrictions had been imposed previously on the number of issues that could be floated by an individual company or a group of companies during a financial year. There will henceforth be no restrictions on the number of Euro-Issues to be floated by a company or a group of companies in a financial year.

End-use : GDRs :

7. In relaxation of earlier guidelines, GDR end-uses will include --

-- financing capital goods imports;

-- capital expenditure including domestic purchase/installation of plant, equipment and buildings and investments in software development;

-- pre-payment of scheduled repayment of earlier external borrowings;

-- investments abroad where these have been approved by competent authorities;

-- equity, investment in JMS/WOSs in India.

8. However, investments in stock markets and real estate will not be permitted.

9. Within this framework, GDR raising companies will be allowed full flexibility in deploying the proceeds.

10. Up to a maximum of 25 per cent of the total proceeds may be used for general corporate restructuring, including working capital requirements of the company raising the GDR.

11. However, banks, FIs, and Non-banking Finance Companies (NBFCs) registered with RBI will be eligible for GDR issues without reference to the end-use criteria mentioned in paras 7 to 10 above with the restriction that investments in stock markets and real estate will not be permitted.

12. A company shall be required to specify the proposed end-uses of the issue proceeds at the time of making their application, and will be required to submit quarterly statement of utilisation of funds for the approved end-uses, duly certified by their auditors.

End-use-FCCBs :

13. Currently, companies are permitted to access foreign capital market through Foreign Currency Convertible Bonds for the restructuring of external debt which helps to lengthen maturity and soften terms, and for end-use of funds which conform to the norms prescribed by the government for External Commercial Borrowings (ECBs) from time to time. In addition to these, not more than 25 per cent of FCCB issue proceeds may be used for general corporate restructuring including working capital requirements.

FCCB pricing :

14. FCCBs are available and accessible more freely as compared to external debt, and the expectation of the government is that FCCBs should have a substantially finer spread than ECBs. Accordingly, the all in cost for FCCBs should be significantly, better than the corresponding debt instruments (ECBs).

15. Companies will not be permitted to issue warrants along with their Euro-Issue.

Repatriation of proceeds :

16. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end-uses.

Validity :

17. Both the in-principle and final approvals will be valid for three months from the date of their respective issue.

Review :

18. The policy and guidelines for Euro-Issues will be subject to review periodically.