In order to regulate debt flows into India, the Reserve Bank of India ("RBI") had vide its Notification dated 3rd May 2000 regulated the prohibition, restriction of the transfer or issue security by a person resident outside India.
Indian companies were raising funds under the Foreign Direct Investment ("FDI") route through the issue of optionally convertible, partially convertible debentures to persons resident outside India.
The Reserve Bank of India ("RBI") has on 8th June 2007 revised the guidelines pertaining to issue of optionally convertible, partially convertible debentures pursuant to which only those instruments, fully and mandatorily convertible into equity, would be eligible to be issued to a person resident outside India under the FDI scheme.
Foreign Institutional Investors ("FIIs"), registered with the Securities and Exchange Board of India ("SEBI"), would be eligible to invest in listed non-convertible debentures, bonds issued by Indian companies in terms of RBI/SEBI norms on investment in rupee debt instruments.
In accordance with the above revision, companies, which have received funds from the issue of optionally convertible/ partially convertible instruments on or before 7th June 2007 would be entitled to issue such instruments. Extant investments in instruments not fully and mandatorily convertible, would continue till their current maturity.
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