Indian companies' overseas rupee bonds may offer much more than the yields on G-Secs

Indian companies may offer up to 5 percentage point more than government bond yields in their overseas rupee bond sales, and the exchange rate risk may rest with the investor, the Reserve Bank of India has said in its draft guidelines. All those companies that qualify to raise funds through the socalled external commercial borrowing can sell such bonds, the central bank said in its draft guidelines. Indian banks are barred from investing in such bonds.

Under ECB, interest rates are linked to international benchmarks such as the Libor or the London Interbank offered rate."The subscription, coupon payments and redemption may be settled in foreign cur rency," said the draft gui delines posted on the central bank's website for comments till June 15."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."

Yields on, say, the local government bond is over 7.5 per cent. The rates on ECBs, where the currency risk is borne by the issuer, are usually linked to Libor where rates are almost around 1 per cent. The proceeds of the bonds can be parked as per the rules on the parking of ECB proceeds.

Companies, which are permitted to raise funds through the ECB window under the approval route, will require prior permission of the Reserve Bank of India to issue such bonds and those coming under the automatic route can do so without prior permission of the Reserve Bank of India, it said.

International financial institutions where India is a shareholder will not need RBI approval if it intends to invest the proceeds in India.