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July 2011

A.P. (DIR Series) Circular No. 68, dated 20-5-2011 — Hedging IPO flows by Foreign Institutional Investors (FIIs) under the ASBA mechanism.

By Gaurang Gandhi, Chartered Accountant
Reading Time 1 mins
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Presently, FIIs are allowed to hedge currency risk on the market value of their entire investment in equity and/or debt in India as on a particular date using forward foreign exchange contracts with rupee as one of the currencies and foreign currency — INR options.

This Circular permits FII to, in addition to the above, hedge risk related to transient capital flows in respect of their applications to Initial Public Offers (IPO) under the Application Supported by Blocked Amount (ASBA) mechanism, subject to the following:

(i) FII can undertake foreign currency — rupee swaps only for hedging the flows relating to the IPO under the ASBA mechanism.

(ii) Amount of the swap should not exceed the amount proposed to be invested in the IPO.

(iii) Tenor of the swap should not exceed 30 days.

(iv) Contracts, once cancelled, cannot be rebooked. (v) No rollovers will be permitted under this scheme.

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