Conversion of ECB into Equity: As per FEMA Act conversion of ECB into equity is permitted subject to the following conditions:
(a) The activity of the company is covered under the Automatic Route for Foreign Direct Investment or Government (FIPB) approval for foreign equity participation has been obtained by the company, wherever applicable.
(b) The foreign equity holding after such conversion of debt into equity is within the sectoral cap, if any,
(c) Pricing of shares is determined as per SEBI regulations for listed company or DCF method for unlisted company;
(d) Compliance with the requirements prescribed under any other statute and regulation in force;
(e) The conversion facility is available for ECBs availed under the Automatic or Approval Route and is applicable to ECBs, due for payment or not, as well as secured / unsecured loans availed from non-resident collaborators.
(ii) Conversion of ECB may be reported to the Reserve Bank as follows:
(a) Borrowers are required to report full conversion of outstanding ECB into equity in the form FC-GPR to the Regional Office concerned of the Reserve Bank as well as in form ECB-2 submitted to the DSIM, RBI within seven working days from the close of month to which it relates. The words “ECB wholly converted to equity” should be clearly indicated on top of the ECB-2 form. Once reported, filing of ECB-2 in the subsequent months is not necessary.
(b) In case of partial conversion of outstanding ECB into equity, borrowers are required to report the converted portion in form FC-GPR to the Regional Office concerned as well as in form ECB-2 clearly differentiating the converted portion from the unconverted portion. The words “ECB partially converted to equity” should be indicated on top of the ECB-2 form. In subsequent months, the outstanding portion of ECB should be reported in ECB-2 form to DSIM.
So to convert ECB into equity one have to fulfill the following requirements:-
1) Approval from lender for conversion of ECB into Equity
2) Board Resolution in the company for conversion
3) Reporting of conversion to DSIM in ECB-2
4) Filling of FC-GPRS
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