The Hindu Business Line : Foreign convertible bonds buyback with rupee resources allowed

New Delhi, Dec. 6 Indian companies can now pre-pay their existing foreign currency convertible bonds (FCCBs) from their rupee resources in addition to their foreign currency accruals.

The guidelines for pre-payment/buyback of FCCBs by Indian companies, issued by the Finance Ministry here on Saturday, coincided with the Reserve Bank of India Governor, Dr D. Subbarao’s announcement in Mumbai of growth stimulus measures.

Dr Subbarao said the RBI would now consider applications for buyback of FCCBs out of rupee resources of companies. The central bank had in mid-November invited proposals for premature buyback of FCCBs under the approval route so long as it was financed out of foreign currency resources held in India or abroad and/or out of fresh external commercial borrowings (ECBs).

This is the first time ever a buyback scheme had been framed by the Government for FCCBs, say experts in financial services industry, who see this move as another effort of the Government to placate the Indian corporate sector that had been badly hit by the global financial meltdown.

The Finance Ministry has in its guidelines specified that the provision of pre-payment (premature purchase) of existing FCCBs would be available up to March 31, 2009. Also, the existing condition of minimum maturity period for redemption of bonds has been put on hold till March 31, 2009.

It has also been specified that the initiation power/right of pre-payment was vested with the issuer of bonds and not with the holder of bonds. However, the actual pre-payment would be subject to the consent of the bondholder. Also, the bonds purchased from the holders must be cancelled and should not be re-issued or re-sold.

For buyback allowed under the automatic route out of foreign currency funds raised through fresh ECBs, it has been stipulated that the all-in-cost ceiling should not exceed 6 months LIBOR plus 200 basis points, if the fresh ECBs are co-terminus with the residual maturity of the original FCCBs but is less than three years. Also, there should be a minimum discount of 15 per cent on the book value.

In the case of approval route, Indian companies can buyback out of rupee resources, representing internal accruals, so long as the amount does not exceed $ 50 million of the redemption value of the FCCB per company and a minimum discount of 25 per cent on the book value.

“This is too little, too late and more of a signal to corporate sector, with an eye on the elections. The challenge is to get bigger volumes and more transactions under this prepayment window. I don’t see very many institutional players relinquishing their rights under the bonds at a discount”, Mr Apurva Mehta, Director (Financial Services), KPMG, told Business Line.

Related Stories:
Cos keep away from ECB route as spreads remain high
‘More flexibility for corporate borrowers’
External borrowings melt down to $4 b for June quarter

More Stories on : Overseas Borrowings | Policy | Buyback

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Foreign convertible bonds buyback with rupee resources allowed

Weekly News Round-up

Cotton fabric output drops to 4-1/2 year low

RBI sees inflation rate below 7% by year-end

‘Monitor steel imports to safeguard domestic industry’

M&M opts for partial closure due to demand slowdown

Refinance amount not enough: Home finance companies

‘Markets have discounted RBI measures’

RBI signals cheaper loans

‘Hotels need to work on guest-friendly security measures’