By Pinky Shah, Sonalee Godbole, Gaurang Gandhi, Chartered Accountants
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Part C : RBI/FEMA
Given below are the highlights of certain RBI Circulars.
22 A.P. (DIR Series) Circular No. 39, dated
8-12-2008 — Buyback/Prepayment of Foreign Currency Convertible Bonds (FCCBs)
Guidelines applicable to ECB also apply to FCCB and
accordingly banks are permitted to allow prepayment of ECB up to USD 500 million
without prior approval of the Reserve Bank, subject to compliance with the
stipulated minimum average maturity period as applicable to the loan. Further,
existing ECB can be refinanced by raising a fresh ECB, subject to the conditions
that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity
of the original ECB is maintained. The existing provisions for prepayment and
refinancing will continue, as hitherto.
This Circular has liberalised, subject to other terms and
conditions, the procedure for premature buyback of FCCB, both under the
automatic route as well as the approval route, as under :
A. Automatic Route :
The designated AD Category-I banks may allow Indian companies
to prematurely buyback FCCB, subject to compliance with the terms and conditions
set out hereunder :
(i) The buyback value of the FCCB shall be at a minimum
discount of 15% on the book value;
(ii) The funds used for the buyback shall 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; and
(iii) Where the fresh ECB is co-terminus with the
outstanding maturity of the original FCCB and is for less than three years,
the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as
applicable to short-term borrowings. In other cases, the all-in-cost for the
relevant maturity of the ECB shall apply.
B. Approval Route :
The Reserve Bank will consider proposals from Indian
companies for buyback of FCCB under the approval route, subject to compliance
with the following conditions :
(i) The buyback value of the FCCB shall be at a minimum
discount of 25% on the book value;
(ii) The funds used for the buyback shall be out of
internal accruals, and this has to be evidenced by Statutory Auditor’s and
designated AD Category-I bank’s certificate; and
(iii) The total amount of buyback shall not exceed USD 50
million of the redemption value, per company.
Applications complying with the above conditions may be
submitted, together with the supporting documents, through the designated bank
to the Central Office of RBI for necessary approval.
