Rs 5,594 crore mobilised via FCCB, GDR issues

Friday, December 26 1997

Rs 5,594 crore mobilised via FCCB, GDR issues

OUR BANKING BUREAU

MUMBAI, Dec 25: Domestic corporates mobilised Rs 5,594 crore through foreign currency convertible bonds (FCCBs) and global depository receipts (GDRs) in 1996-97.

The impetus for raising such offshore funds by domestic corporates was provided by the sluggishness in bourses, says the Reserve Bank of India's Report on Currency and Finance, 1996-97.

Corporate entities floated 16 such issues in 1996-97 for an aggregate amount of Rs 5,594 crore. This compares to the four totalling Rs 1,297 crore in the previous fiscal year. Up to April 1997, three issues amounting to Rs 2,228 crore were floated in the Euro-market.

The investment by foreign institutional investors has steadily been going up over the years, the report said. The number of FIIs registered with the Securities & Exchange Board of India (Sebi) increased from 367 in March 1996 to 439 in March 1997 and further to 471 in September 1997. The net aggregate investment by FIIs in the last fiscal at Rs 7,779 crore was 13.4 per cent higher than that of the previous year.

In the first of 1997-98, the net FII investment stood at Rs 4,685 crore, according to Sebi. The cumulative net investments by FIIs at end-September 1997 stood at Rs 29,551 crore.

According to the RBI report, net capital inflows are expected to be positive and significant in the current fiscal. In the first seven months of the financial year, foreign direct investment flows were considerably higher at $2,055 million compared with $1,277 million in the corresponding period of the last fiscal. Portfolio investment flows at $1,825 crore million were, however, marginally lower that those in the corresponding period of the previous year.

Widening ECB route

Submissions by corporates for raising short-term foreign currency loans under the $3 million scheme and short-term credit are considered by the RBI.

ECBs could be contracted to meet expenditure on account building bridges, ports, industrial parks and urban infrastructure as defined under Section 80 A of the IT Act, 1961. ECB proceeds could also be used for telecom, power and railway sectors.

The facility to secure ECBs has also been extended to holding companies/promoters for a maximum amount of $50 million or its equivalent for equity contributions in a subsidiary company, which is into infrastructure projects.

A ceiling of 350 basis points over Libor/US treasury bills has been imposed in the case of ECBs. Corporates have also been allowed to raise 50 per cent of the permissible debt in the form of subordinated debt at a higher interest rate.

Corporate entities can raise long-term funds overseas with an average maturity profile of 10 years and 20 years and proceeds up to $100 and $200 million respectively can be used without end-use restrictions, excluding those in real estate and stock markets.

Exporters are allowed to raise ECB funds capped at twice the average amount of annual exports during the previous three years and amounting to $100 million. The maximum level of entitlement in any one year would be the debt outstanding under the existing $15 million exporters scheme.