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Jul 12, 2012, 08.23 AM IST
The Reserve Bank today extended the scheme for corporates to get rid of their overseas loans by pre-paying them as weak rupee increases their debt obligation.
The pre-payment of foreign currency convertible bonds (FCCBs) "shall come into force with immediate effect and the entire process of buyback shall be completed before March 31, 2013 after which the scheme lapses," an RBI circular said.
With rupee losing about 25% in the last one year, the redemption costs of overseas loans availed by Indian corporates has increased significantly.
Under these circumstances, several companies with FCCBs on their balance sheets are keen to retire these loans.
Last month, drug firm Strides Arcolab had redeemed outstanding foreign currency bonds worth USD 80 million. "On a review, it has been decided to continue the scheme of buyback of FCCBs subject to certain modifications," it said.
Indian firms can now buyback the FCCBs at a minimum discount of 5% on the book value utilising their foreign currency funds under the automatic route, as against 8% earlier, it said.
In case the Indian company is planning to raise a foreign currency borrowing for buyback of the older FCCBs, all foreign exchange regulations relating to foreign currency borrowing should be complied with, it added.
The extension of the window allows greater freedom and leeway to Indian companies. FCCBs witnessed a huge surge during 2006-07. However, the global economic meltdown on 2008-09 impacted most of the companies.
Recently, rating agency Standard & Poor's said that 56 Indian companies, which have to pay back USD 5 billion worth of foreign debt this calendar year, could see their interest burden going up by USD 700 million if they chose to reschedule these obligations.
These companies had issued these foreign currency convertible bonds (FCCBs) between 2006 and 2008 (and mostly in 2007), before the Lehman fall when the stock prices where at record high, and the rupee was trading at 48 to the dollar. Most of these bonds are denominated in the US dollar and hence the mounting worries.
The report said the recent rupee fall has added to the woes. Most of the FCCBs that mature in 2012 were issued in 2007-08, when the rupee was at about 42 to a dollar. The rupee has lost more than 30% against the American currency since then.
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