The Reserve Bank of India (the "RBI"), by a circular
issued on April 13, 2016 (A.P. (DIR Series) Circular No. 60), has
notified certain key changes in relation to overseas issuance of
Indian Rupee ("INR") denominated bonds (popularly known
as 'Masala bonds'), by eligible Indian entities.
This circular has been issued further to RBI circular dated
September 29, 2015 on 'Issuance of Rupee denominated bonds
overseas' and RBI Master Direction No. 5 dated January 1, 2016
on 'External Commercial Borrowings, Trade Credit, Borrowing and
Lending in Foreign Currency by Authorised Dealers and Persons other
than Authorised Dealers', read with the RBI's Fourth
Bi-Monthly Monetary Policy Statement, 2015-16, issued on September
Certain key changes notified through A.P. (DIR Series) Circular
No. 60 are briefly set out below:
Issuance of INR bonds overseas will
be within the aggregate limit of foreign investment in corporate
debt, currently fixed at US$ 51 billion and, in INR terms, at INR
2,443.23 billion (and not US$ 750 million). Proposals to borrow
beyond INR 50 billion in a financial year require prior RBI
The minimum maturity period for INR
bonds issued overseas has been limited to three years (and not five
INR bonds issued overseas can only be
issued in a country and can only be subscribed by a resident of a
country: (a) that is a member of the Financial Action Task Force
("FATF") or of an FATF-Style Regional Body; and (b) whose
securities market regulator is an Appendix A Signatory to the
International Organization of Securities Commission
("IOSCO")'s Multilateral Memorandum of Understanding
("MoU") or to a bilateral MoU with the Securities and
Exchange Board of India (SEBI) for information sharing
arrangements; and (c) is not identified in an FATF public statement
as a jurisdiction having strategic Anti-Money Laundering or
Combating the Financing of Terrorism deficiencies to which
countermeasures apply, or that has not made sufficient progress in
addressing such deficiencies or not committed to an action plan
developed with the FATF to address such deficiencies.
In this relation, the RBI has also notified certain procedural
changes, briefly described below:
Issuers of INR bonds overseas are
required to incorporate provisions in the transaction agreements
and/or offer documents, so as to enable them to obtain the list of
primary bondholders and provide the details to regulatory
authorities in India as and when required and, further, to state
that such INR bonds issued overseas can only be sold, transferred
or offered as security overseas subject to compliance with
aforesaid IOSCO / FATF jurisdictional requirements.
Inflows and outflows (principal only)
on account of borrowing by issuance of INR bonds overseas is
required to be reported on the same day to the RBI, through the
borrowers' Authorised Dealer Category-I banks, detailing actual
drawdowns and repayments and quoting the related Loan Registration
Number ("LRN"), in addition to the Form 83 and ECB-2
returns filed with the RBI as in the case of availment of External
Commercial Borrowings ("ECB") in general.
Pipeline transactions where the LRN has already been obtained,
and proposals where agreements have already been signed or offer
documents already issued, are permitted to be concluded as per
provisions notified earlier by the RBI. In all other overseas
issuances of INR bonds, A.P. (DIR Series) Circular No. 60 dated
April 13, 2016 is effective immediately.
This circular more closely aligns the regulatory frameworks for
INR bonds issued in India under the Foreign Portfolio Investment
("FPI") route and for INR bonds issued by permitted
Indian entities overseas under the ECB route. Critically, the
permitted maturity period for INR bonds issued in India under the
FPI route (viz., three years) and for INR bonds issued by permitted
Indian entities overseas under the ECB route (viz., previously five
years) has now been brought in line, which may make Masala bond
offerings more attractive to investors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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