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    RBI-Buyback of FCCB

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    prateek.kara
    1) The document outlines new guidelines from the Reserve Bank of India regarding buybacks of Foreign Currency Convertible Bonds (FCCBs) by Indian companies. 2) Buybacks of FCCBs up to $500 million can now be allowed under the automatic route by designated banks if certain conditions are met, such as a minimum 15% discount on book value and funding from foreign currency funds. 3) Buybacks above $500 million or not meeting automatic route criteria can be considered under the approval route by the RBI, subject to conditions like a minimum 25% discount and funding from internal accruals up to $50 million per company.

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    RBI-Buyback of FCCB

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    prateek.kara
    27 views4 pages
    1) The document outlines new guidelines from the Reserve Bank of India regarding buybacks of Foreign Currency Convertible Bonds (FCCBs) by Indian companies. 2) Buybacks of FCCBs up to $500 million can now be allowed under the automatic route by designated banks if certain conditions are met, such as a minimum 15% discount on book value and funding from foreign currency funds. 3) Buybacks above $500 million or not meeting automatic route criteria can be considered under the approval route by the RBI, subject to conditions like a minimum 25% discount and funding from internal accruals up to $50 million per company.

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    1) The document outlines new guidelines from the Reserve Bank of India regarding buybacks of Foreign Currency Convertible Bonds (FCCBs) by Indian companies. 2) Buybacks of FCCBs up to $500 million can now be allowed under the automatic route by designated banks if certain conditions are met, such as a minimum 15% discount on book value and funding from foreign currency funds. 3) Buybacks above $500 million or not meeting automatic route criteria can be considered under the approval route by the RBI, subject to conditions like a minimum 25% discount and funding from internal accruals up to $50 million per company.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    27 views4 pages

    RBI-Buyback of FCCB

    Uploaded by

    prateek.kara
    1) The document outlines new guidelines from the Reserve Bank of India regarding buybacks of Foreign Currency Convertible Bonds (FCCBs) by Indian companies. 2) Buybacks of FCCBs up to $500 million can now be allowed under the automatic route by designated banks if certain conditions are met, such as a minimum 15% discount on book value and funding from foreign currency funds. 3) Buybacks above $500 million or not meeting automatic route criteria can be considered under the approval route by the RBI, subject to conditions like a minimum 25% discount and funding from internal accruals up to $50 million per company.

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    of 4

    RBI/2008-09/317

    A. P. (DIR Series) Circular No. 39


    December 08, 2008

    To,
    All Category - I Authorised Dealer Banks
    Madam / Sir,

    Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs)

    Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to


    Regulation No. 21 of Part III and Schedule I to the Notification No. FEMA 120 /RB-2004
    dated July 7, 2004, as amended from time to time, relating to FCCBs. Attention of AD
    Category - I banks is also invited to A. P. (DIR Series) Circular No.5 dated August 1,
    2005, A. P. (DIR Series) Circular No.60 dated May 21, 2007, A. P. (DIR Series) Circular
    No. 4 dated August 7, 2007, A. P. (DIR Series) Circular No. 43 dated May 29, 2008, A.P.
    (DIR Series) No. 16 dated September 22, 2008, A. P. (DIR Series) Circular No.20 dated
    October 10, 2008 and A. P. (DIR Series) No. 26 dated October 22, 2008 relating to
    instructions / guidelines in respect of External Commercial Borrowings, which are also
    applicable, mutatis mutandis, to FCCBs.

    2. Under the extant ECB Guidelines, AD Category - I 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.

    3. As announced in para 4 (v) of the Press Release 2008:2009/697 dated November 15,
    2008, Reserve Bank has been considering proposals, under the approval route, from
    Indian companies for buyback of their FCCBs, provided the buyback is financed out of
    their foreign currency resources held in India or abroad and / or out of fresh external
    commercial borrowing (ECB) raised in conformity with the current ECB norms.
    4. As announced in para 12 of the Press Release 2008-2009/842 dated December 6,
    2008, the existing policy on the premature buyback of FCCBs has been reviewed and it
    has been decided to liberalise the procedure and consider applications for buyback of
    FCCBs by Indian companies, both under the automatic and approval routes, as detailed
    hereunder:

    A. Automatic Route:

    The designated AD Category - I banks may allow Indian companies to prematurely


    buyback FCCBs, 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 per


    cent 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, as laid down in A. P. (DIR Series) No.26 dated October 22,
    2008 shall apply.

    B. Approval Route:

    The Reserve Bank will consider proposals from Indian companies for buyback of FCCBs
    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 per


    cent on the book value;

    ii) the funds used for the buyback shall be out of internal accruals, to be
    evidenced by Statutory Auditor 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 AD Category - I bank, to the Chief
    General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department,
    ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh
    Road, Mumbai-400 001, for necessary approval.

    5. General Conditions

    In addition to the conditions set out above, the following additional conditions shall be
    applicable for the proposals both under the automatic and approval routes:

    (i) The FCCB should have been issued in compliance with the extant guidelines.

    (ii) The FCCB should have been registered with the Reserve Bank; the LRN number
    obtained and ECB 2 returns submitted up to date.

    (iii) No proceedings for contravention of FEMA are pending against the company.

    (iv) The right for buyback is vested with the issuer of FCCBs. However, the actual
    buyback is subject to the consent of the bond holders.

    (v) The FCCBs bought back / repurchased from the holders must be cancelled and
    should not be re-issued or re-sold.

    (vi) The buyback will not have any effect on the bond holders not opting for the buyback
    or on the non-participating bond holders of companies opting for the buyback.

    (vii) The Indian company shall open an escrow account with the branch or subsidiary of
    an Indian bank overseas or an international bank for buying back the FCCBs to ensure
    that the funds are used only for the buyback.

    6. The existing requirement of submission of ECB 2 return will continue as hitherto.


    Further, on completion of the buyback, a report giving details of buyback, such as, the
    outstanding amount of FCCBs, book value of FCCBs bought back, rate at which FCCBs
    bought back, amount involved, and source/s of funds may be submitted, through the
    designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve
    Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor,
    Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001.
    7. This facility will come into force with immediate effect and the entire procedure of
    buyback should be completed by March 31, 2009.

    8. AD Category - I banks may bring the contents of this circular to the notice of their
    constituents and customers concerned.

    9. The directions contained in this circular have been issued under sections 10(4) and 11
    (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without
    prejudice to permissions / approvals, if any, required under any other law.

    Yours faithfully,

    (Salim Gangadharan)
    Chief General Manager-in-Charge

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