Euro Issues by Indian
Companies
From May 1992 onwards, Indian
companies have been issuing Global Depository Receipts (GDRs)
and Foreign Currency Convertible Bonds/Euro Currency Bonds
(FCCBs/ECBs) on the Euro market on a large scale. In the year 1993-94,
the Euro dollar markets were enthusiastically explored by the Indian
firms. Most issues have been for Global Depository Receipts, held in
trust, by offshore managers on behalf of individual investors. During
1995-96, seven Euro issues, all in the form of GDRs, were made which
together raised $652 million.
In November 1995, the Government
relaxed the Euro issue guidelines permitting companies to remit funds
into India in anticipation of the use of funds for approved end uses.
The earlier guidelines issued in October 1994 provided that the Euro
issue proceeds were to be mandatorily retained abroad by the issuer
companies to be repatriated as and when expenditure on approved
project/end uses were incurred.
Guidelines issued by the Finance
Ministry in July 1996. It laid down that 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. This
requirement would be relaxed in view of the importance of the
infrastructure projects, and the need to encourage equity financing of
such projects. Euro-issues shall be treated as direct foreign
investment (subject to extant policies governing direct foreign
investments) in the issuing company.
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.
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; - prepayment or scheduled
repayment of earlier external borrowings; - investments abroad where
these have been approved by competent authorities; - equity investment
in JVs/WOSs in India. However, investments in stock markets and real
estate will not be permitted. 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.
Currently, companies are permitted to
access foreign capital market through Foreign Currency Convertible
Bonds for 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 (ECB) 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.
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 costs for FCCBs should be significantly
better than the corresponding debt instruments (ECBs). Companies will
not be permitted to issue warrants along with their Euro-issue.
The policy and guidelines for
Euro-issues will be subject to review periodically.
