RBI allows cos to buy back FCCBs via Re resources

The central bank today allowed firms to buy back foreign currency convertible bonds (FCCBs) prematurely through rupee resources as RBI's earlier move to permit FCCB buy back through forex found few takers due to a $ crunch.

"In addition (to the RBI's earlier move) the Reserve Bank will consider applications for buy back of FCCBs out of rupee resources," RBI Governor D Subbarao said.

Last month, the RBI had allowed companies to prematurely buyback FCCBs financed by the company's foreign currency resources held in India or abroad.

However, for buying back these bonds through rupee resources, certain conditions have to be met.

One of the conditions is that there has to be a minimum discount of 25 per cent on the book value. Besides, the amount of buy back is limited to $50 million of the redemption value per company and the resources for buy back are drawn out of internal accruals of the company.

Even though liquidity shortage is no longer a major issue, analysts said companies would not be rushing for this facility as many of them are using money for other business purposes.

Economic Affairs Secretary Ashok Chawala also said there is hardly any redemption pressure on FCCBs.

A Finance Ministry release said here companies should open escrow account with the branch or subsidiary of an Indian bank overseas or an international bank to ensure that the funds are used only for buy back.