The Reserve Bank of India (RBI) has recently promulgated rules for issuance of Rupee denominated bonds
by Indian corporates to overseas investors and significantly
relaxed a number of restrictions applicable to the external
commercial borrowing (ECB) regime in foreign currency.
Some market commentators believe letting Indian companies issue
Rupee denominated bonds overseas largely addresses pricing and
currency risks, as well as opens a frame for Rupee denominated
instruments to trade overseas. The salient facts of the new regime,
also referred in market-speak as Masala Bonds are:
Larger Borrower Base: A larger cross-section of Indian
corporates can now issue Masala Bonds, many of whom did not have
such fundraising avenues under the ECB regime.
Flexible Instrument: A plain vanilla fixed rate or floating
rate bond denominated in Rupees and settled in a foreign currency
(freely convertible) can be issued. They may be placed privately or
listed on stock exchanges in accordance with the host country's
No All-in-Cost Ceiling: Unlike the ECB regime, no cap for
all-in-cost has been specified for such bond issuance.
Narrower End-Use Limitations: Unlike the ECB regime, there are
no restrictions on the end use of the bond issuance proceeds for
general corporate purposes, working capital and repayment of Rupee
debt raised from Indian banks.
Overall Amount: The maximum amount that could be raised in any
financial year has been set out at USD 750 million per annum under
the automatic route.
Security Creation Sans RBI Nod: Creation of charge on immovable
assets, movable assets, financial securities and issuance of
corporate/personal guarantees in favour of the bond trustee to
secure the Rupee bonds is permitted with advance consent of the
Reporting Requirements: The ECB regime requirements, such as
obtaining Loan Registration Number, parking of bond proceeds and
conversion into equity, will be applicable as to these bond
In conclusion, this appears to be a transformational move, a
more souk-based approach, and once the first Masala Bond crosses
the finish line, one will be able to gauge the RBI's regulatory
approach. Given the latitude in the regulations, the pricing of
such debt instruments will be contingent on the single credit risk
of the borrower, the security topographies of the bond, the Indian
and global interest rate milieu and country risk—and not on
the regulatory ceilings as per the earlier ECB norms.
For Further Information
If you have any questions about the topics discussed in this
Alert, please contact Saionton Basu in Duane
Morris' London office, any of the attorneys in our India
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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