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August 2011

A.P. (DIR Series) Circular No. 75, dated 30- 6-2011 — Buyback/Prepayment of Foreign Currency Convertible Bonds (FCCBs).

By Gaurang Gandhi, Chartered Accountant
Reading Time 2 mins
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Presently, buyback/prepayment of FCCB requires prior approval of RBI.

This Circular has:

1. Extended the date for completion of buyback/ prepayment to 31st March, 2012.

2. Liberalised the procedure for buyback/prepayment of FCCB as under:

A. Automatic Route

Indian companies can prematurely buyback FCCB, subject to compliance with the following:

(i) Buyback value of the FCCB must be at a minimum discount of 8% on book value.

(ii) Funds used for the buyback must be out of existing foreign currency funds held either in India (including funds held in the EEFC account) or abroad and/or out of fresh ECB raised in conformity with the current ECB norms.

(iii) Where fresh ECB is raised, it must co-terminus with the outstanding maturity of the original FCCB. If it is raised 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. If it is raised for more than three years, the all-in-cost for the relevant maturity of the ECB will apply. 

B. Approval Route

Indian companies can buyback FCCB up to redemption value of US $ 100 million out of their internal accruals, subject to compliance with the following:

(i) Minimum discount of 10% of book value for redemption value up to US $ 50 million.

(ii) Minimum discount of 15% of book value for the redemption value over US $ 50 million and up to US $ 75 million.

(iii) Minimum discount of 20% of book value for the redemption value of over US $ 75 million and up to US $ 100 million.

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