Guidelines on exchangeable bonds ready

The finance ministry has prepared guidelines on a Budget proposal to allow corporates to issue bonds in the overseas markets convertible with any group company shares and is awaiting the law ministry's response before notifying them.

An official source said it might take anywhere between "one week to six weeks" for the law ministry to vet the guidelines, which would be broadly on the lines of those for foreign currency convertible bonds (FCCBs).

For FCCBs, RBI norms prescribe that the price at the time of converting the bonds into equity would have to adhere to the six-month average price on stock exchange at the time of issue of the instrument.

The sectoral and external commercial borrowing regulations are also likely to apply on exchangeable bonds.

An exchangeable bond is a debt-equity instrument that allows large corporations with holdings in group companies to reap benefits of a float without actually selling a stake. A number of companies including Tata Sons have evinced interest in issuing such bonds to raise capital.

Exchangeable bonds are different from FCCBs since the latter can be redeemed only with shares of the issuing company and not a group firm in which the issuer has a stake.