RBI says companies can swap overseas borrowings into equity at forex rate prevailing on date of conversion

The Reserve Bank of India (RBI) said companies can swap their overseas loans or other payables such as fees and royalties with equity at the foreign exchange rate prevailing on the date of agreement for the conversion.

Indian companies are allowed to issue equity shares against External Commercial Borrowing (ECB) subject to conditions. However, there was no clarity on how the rupee amount against which equity shares are to be issued shall be arrived at.

RBI said on Thursday that where the liability sought to be converted by the company is denominated in foreign currency as in case of ECB, import of capital goods, etc, it will be in order to apply the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion.

It added that it shall have no objection if the borrower company wishes to issue equity shares for a rupee amount less than that arrived based on the forex rate prevailing by a mutual agreement with the ECB lender. It also said that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.

RBI also said this rule shall also apply to a liability denominated in foreign currency where lump sum fees/royalties, etc. are permitted to be converted to equity shares or other securities to be issued to a foreign investor subject to other conditions.

(Edited by Joby Puthuparampil Johnson)

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