RBI extends time limit for FCCB buyback
The Reserve Bank of India extended the time limit for buyback of Foreign Currency Convertible Bonds (FCCB) issued by Indian companies up to March 31, 2012, at discounted rates. The discount rates have been decreased from 15 to 8 per cent for premature buyback under the automatic route and from 25 per cent to 20 per cent under the approval route.
The funds to be used for buyback by companies should be held in foreign currency – either in their Exchange Earners' Foreign Currency (EEFC) accounts in India or abroad, or out of fresh external commercial borrowings (ECBs) raised under the current ECB norms at a cost not exceeding LIBOR plus 200 basis points as notified by RBI.
The maturity of the fresh ECBs issued should be less than three years and also coincide with the maturity of the original FCCBs.
For other cases, the extant margins over LIBOR would apply (300 basis points for tenors between three and five years and 500 basis points for tenor greater than five years).
Under the approval route, Indian companies have been permitted to buy back FCCBs up to $100 million of the redemption value per company, out of their internal accruals with prior RBI nod using three different discount factors. For redemption value of up to $50 million, a minimum discount of 10 per cent of book value would be applicable; for between $50 million and $75 million, it would be 15 per cent. For redemption value between $75 million and $100 million, it would be 20 per cent of book value.
Companies may apply for premature buyback to the RBI through their bankers who have category I Authorised Dealer status.
Recently, the RBI had cautioned that corporates, which raised funds through FCCBs would face problems as holders may not opt for conversion of bonds into equity because of low market value of shares.
Source: Business Line
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