Indian companies allowed to prepay the existing FCCB

Ministry of Finance, Department of Economic Affairs, Government of INdia New Delhi, 6th December, 2008 - Guidelines for Prepayment and Buyback of FCCB issues by the Indian Companies - A Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) was notified by the Government of India in November, 1993. Liberalisations in the policy are announced from time to time.

With a view to further liberalising the scheme, it has been decided by the Government to allow Indian companies to prepay the existing FCCBs subject to the following conditions:-

(a) This provision of pre-payment (premature purchase) of existing FCCBs will be available upto 31st March, 2009. The existing condition of minimum maturity period for redemption of bonds is put on hold till 31st March, 2009.

(b) The initiation power/right of prepayment is vested with the issuer of Bonds and not with the holder of bonds. However, the actual pre-payment is subject to the consent of the holder of the bond.

(c) The bonds purchased from the holders must be cancelled and should not be re-issued or re-sold.

(d) This prepayment scheme of FCCBs will not have any effect on the bondholders of Indian Companies not opting this window or on the non-participating bondholders of Indian companies opting this window.

(e) Buyback should be routed through the designated Authorised Dealer for the FCCB.

(f) Companies should open escrow account with the branch or subsidiary of an Indian bank overseas or an international bank to ensure that the funds are used only for the buyback.

3. This scheme is available under both automatic route and approval route.

4. Auto Route:

Buyback of FCCBs under the auto route are allowed for cases where:

(i) the funds used for the buyback represent either existing foreign currency funds held abroad or in India or in EEFC accounts; and

(ii) fresh ECBs is raised in conformity with the current ECB norms. Where fresh ECB is co-terminus with the residual maturity of the original FCCB but is less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short-term borrowing.

(iii) minimum discount of 15 per cent on the book value.

5. Approval Route:

Indian companies are allowed to buyback out of Rupee resources, representing internal accruals, subject to the following conditions:

(i) rupee resources represent internal accruals to be evidenced by Chartered Accountant’s and designated AD’s certificates;

(ii) the amount does not exceed USD 50 million of the redemption value of the FCCB per company; and

(iii) minimum discount of 25 per cent on the book value.

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