Euro Issues

From May 1992 onwards, Indian companies have been issuing Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds/Euro Currency Bonds (FCCBs/ECBs) on the Euro market on a large scale. Upto December 1995, Indian firms raised US$ 5,180 million through 64 issues of GDRs & FCCBs. During 1995-96, seven Euro issues, all in the form of GDR were made which together raised $652 million.

To date, 47 GDR issues have taken place, which raised $3,856 million, and 11 ECB issues which raised $998 million. Most of these securities are listed in Luxembourg. GDR issues have tapered down in recent months.

Guidelines issued by the Finance Ministry in October 1994 had only specified that proceeds of Euro issues of Indian companies should be kept abroad, until they are ready to be deployed for specific projects. However, during January 1995, the RBI stated that these proceeds could be deposited in foreign branches of Indian companies or foreign banks, which are rated for short-term obligations. The funds could also be invested in treasury bills, or high quality commercial paper, having a maturity of less than one year.

The Ministry of finance is also considering a proposal of taking into consideration the profit before tax as a measure of profitability for considering Euro Issue proposals as against profit after tax considered earlier. This would bring tax-paying companies at par with the non tax-paying companies.

Major relaxations were made in the guidelines governing Euro issues by the Union Finance Ministry on November 25, 1995. The objective of these guidelines is to facilitate easier repatriation of funds raised abroad. The gist of new guidelines which are given below are expected to augment India's foreign exchange

• Euro issue proceeds can be directly repatriated for the use of approved end uses.
• The ceiling of using Euro issue proceeds for working capital and general corporate restructuring has been raised from 15% to 25%.
• External commercial borrowing (ECB) was earlier possible either through floating rate notes or fixed rate bonds.

According to the new guidelines, companies other than those investing into infrastructural facilities like power, petroleum exploration and refining, telecommunication, ports etc are required to have a three year track record of profitability to be able to raise funds by Euro issues.