RBI allows cos to issue overseas rupee denominated bonds

Mumbai: In order to provide additional source of funding, the RBI today allowed Indian corporates to raise funds from overseas market in rupee denominated bonds having some limited end use restrictions with a minimum maturity of five years.

“Any corporate or body corporate is eligible to issue Rupee denominated bonds overseas. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) coming under the regulatory jurisdiction of the Securities and Exchange Board of India are also eligible” RBI said in its guidelines.

As per the norms, companies would be allowed to raise up to USD 750 million per annum under the automatic route. Beyond this limit will require prior approval of the RBI.

However, there is small negative list regarding use of proceeds, which include stock market operations, real estate activity and purchase of land.

Besides, activities prohibited as per the foreign direct investment (FDI) guidelines have also been barred from investment from the proceeds raised under this route.

“The foreign currency — Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds,” it said.

The all-in-cost of such borrowings should be commensurate with prevailing market conditions.

The guidelines further said that only plain vanilla bonds issued in a Financial Action Task Force (FATF) compliant financial centres either placed privately or listed on exchanges as per host country regulations.

As regards investors, it said, banks incorporated in India will not have access to these bonds in any manner whatsoever.

“Indian banks, however, can act as arranger and underwriter. In case of underwriting, holding of Indian banks cannot be more than 5 per cent of the issue size after six months of issue. Further, such holding shall be subject to applicable prudential norms,” it said.

The overseas investors will be eligible to hedge their exposure in rupee through permitted derivative products with banks in India, it said.

“The investors can also access the domestic market through branches or subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis,” it added.

Earlier in the day, Finance Minister Arun Jaitley said the move will provide additional source of funding for Indian companies and boost investment in the economy.

In its fourth bimonthly monetary policy RBI today said, it has been decided to permit corporates to issue rupee denominated bonds often referred as ‘masala bond’ with a minimum maturity of five years at overseas locations within the ceiling of foreign investment permitted in corporate debt of USD 51 billion.