Our Bureau

Mumbai, April 21 The Reserve Bank of India on Tuesday further eased norms for Indian companies to use their internal accruals for buy-back of their foreign currency convertible bonds, as corporate houses continue to queue up to buy back their foreign loans at a deep discount.

In its Annual Statement of Monetary Policy, the central bank has proposed to increase the total amount of permissible buyback of FCCBs, out of internal accruals, from $50 million of the redemption value per company to $100 million. The central bank has linked the higher amount of buyback to larger discount.

The RBI had begun to liberalise the buyback policy in December 2008. On March 13, 2009, RBI further liberalised the norms by extending the deadline for companies to complete the buyback by nine months from March 31, 2009 to December 31, 2009.

FCCB is a debt instrument with an equity option, which remains purely a debt play as long as it is not converted. With the changed market dynamics, many of these bonds, which were floated during the bullish days between 2003 and 2007, are now being traded at discounts as high as 50 to 60 per cent. Most bondholders are keen to dispose of the FCCBs issued by these Indian companies at a discount.

By buying back the FCCBs at a discount, Indian companies earn the twin benefits of earning a substantial one-time gain by paying off a foreign loan at a discount and not having to carry the mark-to-market losses for the redeemed FCCBs.

The central bank said Indian companies may henceforth be permitted, under the approval route, to buy back FCCBs out of internal accruals with a minimum discount of 25 per cent of book value for redemption amount of up to $50 million, 35 per cent of book value for redemption amount more than $50 million and up to $75 million and 50 per cent of book value for amount between $75 million and $100 million.

Up to April 15, 2009, the central bank has approved 18 proposals for buyback of FCCBs involving $765 million, with the discount ranging from 25 per cent to 50 per cent.

Reliance Communications, Mahindra and Mahindra, Moser Baer, Radico Khaitan, Hotel Leelaventure and Jubilant Organosys are among the companies that have brought back FCCBs