Draft framework: Corporates allowed to float rupee-linked bonds abroad

The bonds may be floated in any jurisdiction that is Financial Action Task Force (FATF) compliant. The subscription, coupon payments and redemption may be settled in foreign currency. “The coupon on the bonds should not be more than 500 basis points above the sovereign yield of the Government of India security of corresponding maturity as per the yield curve prevailing on the date of issue,” the RBI said.

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End use restrictions will be as applicable under the extant ECB guidelines, it said, adding that for USD-rupee conversion, RBI’s reference rate on date of issue will be applicable. The guidelines also proposed that international financial institutions, of which India is a shareholding member, intending to deploy the entire proceeds of the issuance in India, shall not require prior permission for the issuance of rupee bonds overseas, irrespective of the amount of issuance.

“In other cases, where an international financial institution (of which India is a member) wishes to retain the freedom to deploy the issue proceeds in any member country, would require prior permission from the RBI or Government of India,” it said. It further said that any investor in these bonds will be eligible to hedge both the foreign currency risk as well as credit risk through permitted derivative products in the domestic market.

Some international financial institutions were permitted to issue rupee linked bonds in overseas markets, subject to certain conditions.

In view of the interest shown by international investors for these bonds, the Reserve Bank on April 7, 2015 announced in its first bi-monthly monetary policy its intention to expand the scope of issuance of these bonds by the international financial institutions as also to permit Indian corporates, eligible to raise external commercial borrowings, issue such bonds with an appropriate regulatory framework.