MCA Clarification: FCCB issue does not require to comply with Public Offer / Private Placement Provisions

The Ministry of Corporate Affairs has yesterday (November 13, 2014) vide its circular clarified in response to industry references that the provisions of Chapter III of the Companies Act, 2013 dealing with Prospectus and Allotment of Securities shall not apply to an issue of FCCBs and FCBs made exclusively to persons resident outside India in accordance with the FCCB Scheme, unless otherwise provided in the Scheme or the directions / regulations issued by the Reserve Bank of India.

FCCBs are issued in accordance with the Foreign Currency Convertible Bonds and ordinary shares (through depository receipt mechanism) Scheme, 1993 issued by the Ministry of Finance, as amended from time to time.

Foreign Currency Convertible Bonds (FCCBs) are regulated by the RBI pursuant to Schedule I of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 (FEMA ODI Regulations). FCCBs are defined under the FEMA ODI Regulations to mean a bond issued by an Indian company expressed in foreign currency, the principle and interest in respect of which is payable in foreign currency.

FCCBs are subscribed by a non-resident entity in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part. The conversion has to be in accordance with the sectoral caps prescribed in the relevant regulations for foreign direct investment read with the FDI Policy issued by the Department of Industrial Policy and Promotion. RBI regulates the maturity, expenses incurred on the issue, manner of listing / entering into private placement contracts, end uses etc.