RBI extends time limit for FCCB buyback

The Reserve Bank of India (RBI) today extended the time limit for buyback of Foreign Currency Convertible Bonds (FCCBs) issued by companies, by nine months to March 31, 2012 but has reduced the discount slabs for the buyback.

The earlier deadline for buyback of FCCBs was set for June 30, 2011.

Indian firms can now buyback the FCCBs at a minimum discount of 8% on the book value utilising their foreign currency funds under the automatic route, as against 15% earlier, the RBI said in a notification.

Under the approval route, Indian companies have been allowed to buyback the FCCBs at a minimum discount between 10 and 20% on the book value utilising their internal accruals. This was earlier fixed at 25-50%.

"After reviewing the current policy on buyback/prepayment of FCCBs, the RBI in consultation with the government of India has decided to extend the time limit for buyback of FCCBs issued by Indian companies up to March 31, 2012 at reduced discount rates," the central bank said.

It further added: "The existing policy on the premature buyback of FCCBs has been reviewed and it has been decided to extend the time limit for such facility and liberalise the procedure."

FCCB is a debt instrument with an equity option by which companies raise funds from overseas. It remains a debt till the option is exercised and the bond is converted into equity.

The extension of the window allows greater freedom and leeway to Indian companies.

FCCBs witnessed a huge surge during 2006-07. However, the global economic meltdown on 2008-09 impacted most of the companies.

As per today's notification, under the approval route the companies have been allowed to buyback the FCCBs at a minimum discount of 10% of book value up for redemption of up to $50 million as against 25% earlier.

For redemption of $50-75 million the discount has been fixed at 15% as against 35% earlier. As for redemption of $75-100 million, the discount rate has been reduced to 20% from 50%.