The exchangeable bonds proposed by the government as an additional instrument for fund-raising by companies overseas may again be put on the backburner. While the government has already issued the required notification to make the scheme operational, the Reserve Bank of India is still not in favour of the instrument.
Exchangeable bonds are instruments that allow a holding company or the parent company of a group to raise funds from the overseas market for use by any of the group companies. The bonds will then be converted into shares of the company for which funds were raised.
In response to the Budget announcement on exchangeable bonds in 2007-08, RBI has sent a cautionary note to the government stating that the rules for exchangeable bonds will have to be aligned with the norms for external commercial borrowings.
It had specifically raised issues on transparency on the end use of such funds, which will be raised by one entity and used by another. The guidelines issued by the government are silent on the monitoring of the end use of funds, said a source.
According to sources, RBI is still not sure how the product will work within