Foreign convertible bonds buyback with rupee resources allowed
New guidelines announced; prepayment window open till March 2009.
Our Bureau
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
http://www.thehindubusinessline.com/2008/12/07/stories/2008120751330100.htm
"Knock, Knock.
Who's there?
Opportunity.
Don't be silly - opportunity doesn't knock twice!"
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