Buyback of foreign currency convertible bonds (FCCBs)

A good news for corporate India is the extension of the deadline for buyback of foreign currency convertible bonds (FCCBs) by the Reserve Bank of India (RBI) by nine months to 31 December 2009. The central bank made the announcement after trading hours on Friday, 13 March 2009. In December 2008, the RBI had liberalised the procedure for buyback of FCCBs by Indian companies, both under the automatic and approval routes.

Under the automatic route, some of the conditions for buyback of FCCBs were: value of the FCCB should be at a minimum discount of 15% on the book value; the funds used for the buyback should be out of existing foreign currency funds held either in India (including funds held in EEFC account) or abroad and/or out of fresh ECB raised in conformity with the current ECB norms.

Buyback FCCBs will help companies reduce liabilities. It will also ease concerns about the impact of foreign exchange fluctuations in the profit & loss account, to the extent of the reduction of the FCCBs. The recent steep slide in the rupee will increase in the cost of servicing overseas debt to the extent of the rupee's slide unless the company (which has overseas borrowings) has adopted an effective hedging strategy.