Jubilant FCCB buyback gets lukewarm response

Jubilant Organosys’ offer to buy back all of its outstanding foreign currency convertible bonds (FCCBs) worth $241 million received lukewarm response as its investors tendered only 20 per cent of the value of the bonds.

The Noida, Uttar Pradesh-based drug maker, offered to buy back all its FCCBs via a tender offer, but received bids worth only $48 million, according to the company.

"Jubilant's tender offer is much below the conversion price and that is the reason there are not many takers," said Ranjit Kapadia, head of Life Science Research at Prabhudas Liladhar.

The buyback was at a discount of 42.6 per cent for FCCBs maturing in May 2010 and 39.6 per cent for those due in May 2011, including yield to maturity (YTM) on returns, Jubilant Chief Financial Officer Shankar Iyer said.

In a filing to the Bombay Stock Exchange today, the company said it would repurchase FCCBs worth $3 million due in 2010 for an aggregate cash amount of $2.55 million and would also repurchase FCCBs worth $45.3 million due in 2011 for $38 million.

Iyer said the company would look at more buybacks, if more FCCB holders are ready to tender their shares. "We will also look at open market transactions," he said. The tender offer was the first of its kind in India after Reserve Bank of India allowed companies in November to prematurely buy back FCCBs by using funds raised through external commercial borrowings (ECBs).

The rule was further relaxed earlier this month by allowing companies to use rupee reserves to redeem overseas debt. The central bank’s move was aimed at strengthening local companies’ balance sheet by reducing their vulnerability to the volatility of overseas debt.

Earlier, Jubilant had bought back FCCBs worth $11.9 million through open market transactions. Together, the total purchase is worth $59.4 million. Jubilant had raised more than $275 million by selling convertible bonds overseas, mainly to fund its acquisitions.