The Hindu Business Line : RCom redeems FCCB bonds

According to an RCom notification issued to the Bombay Stock Exchange on Tuesday, the company has repurchased the bonds at a discount of 52.5 per cent of the face value of the bonds. The bonds had a face value of $100,000 each, aggregating to $25 million or about Rs 121.22 crore at current exchange rates. The redemption implied that the liabilities would be extinguished from the company’s balance sheets as on December 29. For RCom, this would imply the redemption obligation to be in the region of about $13 million.

These FCCBs issued in February 2007 had a tenor of five years. Accordingly, they were due for redemption only in February 2012. The FCCBs had offered a conversion option into equity at a strike price of Rs 661 a share.

The FCCBs issued by RCom were in the nature of Deep Discount bonds or issued at a discount to face value and no coupon payments. Instead, the bonds are redeemed at a face value on the maturity date. The FCCBs also carry a conversion option into equities. Consequently, so long as the conversion is not exercised, the bonds would remain as a debt on the borrower’s books. The FCCBs were mostly picked up by foreign institutional investors and other cross border investors, including non-resident Indians. However, with the equity markets in turmoil, most investors preferred to exit from FCCB holdings.

Last month the Reserve Bank of India had permitted corporates to buy back FCCBs. RBI’s conditions were that the buybacks would have to be at a minimum discount of at least 15 per cent. The RCom redemptions are within the RBI norms, since the bonds have a residual maturity of at least four years. However, the RBI conditions implied that investors in such instruments would be taking a haircut for premature redemptions. Besides, the redemptions would have to be funded from their foreign currency funds or through foreign currency borrowings raised within the current guidelines.

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