RCom redeems FCCBs worth Rs 2,250 cr

Reliance Communications on Tuesday redeemed all its outstanding foreign currency convertible bonds (FCCBs) worth Rs 2,250 crore ($500 million), which are due for conversion this month. These FCCBs, which were issued in May 2006, were redeemed at a premium of 25.84 per cent, and the payments were made on May 9, the due date, the company said in a press release.

After this redemption, Reliance can avoid allotting equity shares, which would arise out of their potential conversion. If the FCCBs had come in to conversion, the company would have to allot 27,413,085 equity shares of Rs 5 each.

"The equity capital of the company stands unchanged after the redemption of the FCCBs," the company said.

The company had raised $1.5 billion though these bonds, and while $1 billion worth of bonds come to maturity by 2012, $500 million worth were due to be redeemed in May. The company redeemed a tranche of $200 million worth bonds in 2008, while the rest remained outstanding.

Analysts say this it is a good move by the company as there would be few chances of conversion at the current share price. In May 2006, the average share price of the company was at around Rs 310 per share, while on Tuesday the stock went down 1.3 per cent to close at Rs 90.6.

"The conversion price is way below the current stock price, so the company had to redeem it. They could have rolled it over but from a bond holder's point of view, it is better to take the interest and exit now the company has been named in the 2G scam in addition to other problems," said a Mumbai-based stock analyst, who could not be quoted.

Reliance Communications' stock has been taking a beating since 2009 after the price war between telecom operators started to eat into the margins in the business. In addition, analysts have also raised concerns on the company over its high debt, which stood at Rs 32,000 crore at the end of the third quarter. Also, RCom's plan to sell 26 per cent stake in the company and its tower business too could not go through.