India makes raising foreign money tougher

The Indian Ministry of Finance Tuesday clamped on plans of Indian firms to raise foreign money through preference shares, news website businessstandard.com reported.

The website said that the Department of Economic Affairs announced that beginning May 1, all foreign investment coming in as non-convertible, optionally convertible or partially convertible preference shares would be considered debt and come under the overall ambit of external commercial borrowing (ECB) guidelines and caps.

This is the first time that the ECB cap, which hitherto applied only to debt, will cover a class of shares. The ECB cap for 2007- 08 is 22 billion U.S. dollars.

In April-December 2006-07, Indian companies raised over 9 billion dollars in ECBs, against 4.3 billion dollars (excluding Indian Millennium Deposit redemptions) in the same period of 2005- 06, the website said.

In addition, any foreign investment coming in as fully convertible preference shares would be treated as part of share capital, and would be included for calculating foreign equity for sectoral caps.

Source: Xinhua