Time may be running out for Indian companies planning to buyback their own foreign currency-denominated bonds trading at a discount.
From January 1, the government is likely to discontinue the facility allowing firms to buy their own foreign currency convertible bonds (FCCBs) .
“This has been done keeping in view the prevailing macroeconomic conditions and global developments, especially in view of the improvement in the stock prices and concomitant convergence between the spot price and conversion price of the FCCBs,” a senior government official said on the condition of anonymity as he was not authorised to speak to the media.
An FCCB is a bond that the holder holds an option to convert into a stock at a later date.
The Reserve Bank of India (RBI) had relaxed norms on buyback of FCCBs last year, permitting companies to buy back their foreign bonds either with their foreign exchange resources or after raising fresh loans from overseas markets.
As overseas investors queued up to sell off FCCB holdings to cut losses amid a free fall in global markets, firms such as Mahindra & Mahindra, Moser Baer and Reliance Communications bought their own bonds at low prices — which helped them reduce debt.
“The demand for buyback of FCCBs has declined considerably in the past three months, reflecting the overall improvement in credit and equity market conditions,” the official said.
More than 150 companies have raise more than $15 billion ( about Rs 69,000 crore) via FCCBs from 2006 to ’08.