UPDATE 1-India cos allowed to borrow via exchangeable bonds

(Adds details, analyst's comments)

By Unni Krishnan and Rajkumar Ray

NEW DELHI, Feb 15 (Reuters) - India on Friday gave listed firms an extra option to raise funds overseas, allowing the issue of foreign currency exchangeable bonds whose proceeds can be used to fund operations abroad.

The finance ministry said in a statement the new bonds can be issued by a company only to foreign investors but the repayment could be made through offering equity in any firm within its group.

Analysts said the bonds will give companies more flexibility in raising money from overseas markets, reduce risks for investors and possibly ease capital inflows which have stoked appreciation of the rupee and hit exporters' margins.

"It's one more step towards flexibility. A company can co-leverage on group companies' strengths to raise money from overseas," an analyst with a local brokerage said.

The exchangeable bonds (FCEBs) can only be issued by a firm which operates in a sector where the government allows foreign direct investment or overseas borrowing, the ministry said.

"The proceeds of the FCEB shall be retained and/or deployed overseas in accordance with the policy for the proceeds of external commercial borrowings," it said.

Receipts from the bonds could be used to fund the activities of any group company overseas but cannot be invested in local capital markets or in domestic real estate projects.