FCCB
Foreign Currency Convertible Bonds
Foreign-currency-denominated convertible bonds issued by Indian companies. Governed by RBI's ECB framework and the FCCB Scheme 1993.
Foreign Currency Convertible Bonds (FCCBs) are debt instruments denominated in a foreign currency (USD, EUR, etc.) issued by an Indian company to non-resident investors, convertible into equity shares at a pre-agreed conversion price.
Governing framework:
- Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993
- RBI's External Commercial Borrowings (ECB) framework under FEMA (Master Direction on External Commercial Borrowings)
- Companies Act 2013 debenture provisions (Section 71)
Why issue FCCBs:
- Tap global bond markets for lower-cost financing
- Avoid immediate equity dilution — conversion deferred
- Currency match for companies with USD revenues
- Listing on overseas exchanges (Singapore SGX-ST, Luxembourg) for liquidity
Key RBI conditions:
- Eligible borrowers: all entities eligible to receive FDI; specified sector restrictions.
- Recognised lenders / investors: non-resident entities from FATF / IOSCO-compliant jurisdictions.
- All-in-cost ceiling: benchmark rate (e.g., SOFR / EURIBOR) + spread, capped per the ECB Master Direction.
- Minimum average maturity: 5 years for amounts above prescribed thresholds (3 years for smaller issuances).
- End-use restrictions: cannot be used for real estate, equity investment in domestic capital markets, working capital (with carve-outs), or repayment of rupee loans (with limits).
- Conversion price: not less than the price determined under FEMA pricing guidelines for unlisted; market-linked for listed.
Reporting:
- Form ECB to RBI through the AD bank before issuance.
- Monthly Form ECB-2 for outstanding balances.
- PAS-3 / FC-GPR on conversion to equity.
Tax treatment:
- Coupon paid in foreign currency is subject to withholding tax under Section 115AC and applicable tax treaties.
- Conversion is not a taxable event for the holder; subsequent sale of equity attracts capital gains.
Practical note: FCCBs are a late-stage and listed-company instrument. For early-stage Indian startups, CCDs to FDI investors are the workhorse cross-border convertible — see CCDs. FCCBs become relevant pre-IPO or post-listing when accessing offshore debt liquidity.
Hybrid debt instruments that must convert to equity by a fixed date. Treated as equity under FEMA; popular for FDI-route investments into Indian startups.
The dominant Indian VC instrument. Preference shares that must convert to equity by a fixed date — providing downside protection plus equity upside.
Cross-border equity investment in Indian companies. Two routes: automatic (no approval) and government (prior approval). Sector caps apply.
Indian statute governing cross-border transactions. Administered by RBI. Two pillars: current account (free unless restricted) and capital account (regulated).