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 16. Give the definition and characteristics of Foreign Currency Exchangeable Bonds (FCEB).

Foreign Currency Exchangeable Bonds (FCEBs) are quasi-debt instruments issued by an Indian company to non-resident investors. The principal and interest are payable in foreign currency, and the bonds are exchangeable into equity shares of a different listed company (the "offered company"), which typically belongs to the same promoter group. [1, 2, 3, 4]


Key Characteristics
  • Multiple Entities Involved: Unlike traditional Foreign Currency Convertible Bonds (FCCBs) which involve just one company, FCEBs involve at least three parties: the issuing company, the offered company (whose shares you get), and the investor.
  • Currency: Denominated in any freely convertible foreign currency; both interest and principal payments are made in that foreign currency.
  • Exchange Mechanism: Investors can exchange the bonds for existing shares of the offered company. The issuing company must be a part of the promoter group of the offered company and already hold those shares at the time of issuance.
  • No Fresh Dilution: Because the bond is exchanged for existing shares held by the issuer, it does not lead to an issuance of fresh shares or further equity dilution for the offered company.
  • Cash Settlement Prohibition: The investor must take delivery of the physical equity shares upon exercising the exchange option; net cash settlement is not permissible.
  • Maturity & Redemption: They carry a minimum maturity period of five years. If the exchange option is not exercised by the investor, the issuer is obligated to redeem the bonds for cash (principal plus interest). [3, 11]
For detailed regulatory and procedural guidelines, you can review the Government of India's Issue of Foreign Currency Exchangeable Bonds Scheme, 2008 provided by the Reserve Bank of India. [9, 12, 13]





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