Indian companies planning premature buybacks of their foreign currency convertible bonds (FCCBs) are finding it difficult to get sellers at the right price. These companies have already sought an extension in the deadline for this from the Reserve Bank of India (RBI).
About 13 companies – including Hyderabad-based Aurobindo Pharma, India’s largest forging company Bharat Forge and leading steel producer JSW Steel – have not been able to buy back outstanding FCCBs despite making announcements in December and January. “The FCCB market is not a highly liquid one,” said Sanjay Bhandarkar, Managing Director, N M Rothschild & Sons (India), a global investment banking firm.
“Supply of people willing to sell the convertibles at the current low prices is less,” he added. On November 15, the RBI had said that it would consider approving premature buybacks of FCCBs by Indian companies through the external commercial borrowing (ECB) route. Following that, on demand from companies, the apex bank also allowed repurchase of FCCBs worth $50 million using the rupee resource.
Noida-based Jubilant Organosys is the only company which has utilised the $50-million ceiling stipulated by the RBI. It has, in fact, bought back FCCBs for a total of $59.4 million, which means it has also utilised its ECB resources.
There are seven other companies, including India's largest tractor maker Mahindra and Mahindra (M&M) and leading mobile services provider Reliance Communications, whose buybacks fell short of the $50-million ceiling set by the RBI.
“These companies certainly have the financial strength to buy back the FCCBs, and they are willing to purchase more. But they are finding it hard to get sellers,” said an investment banker with an international firm on condition of anonymity. "Companies have now sought an extension of the deadline set by the RBI," he added.
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M&M has so far bought back $6.5 million worth of FCCBs, while it has outstanding FCCBs worth $193.5 million. This outstanding portion of the FCCBs would mature in March 2011.Similarly, Reliance Communications has bought back $35 million worth of FCCBs, while it has outstanding bonds worth $261.95 million, which will mature in March 2011, and another $990 million, maturing in February 2012.
According to an analyst’s estimate, around 185 companies issued FCCBs worth $20 billion from 2004-05 to 2007-08. Out of this, about $13.5 billion is still outstanding, while the balance got converted into equity. Since the time the RBI opened the window for buyback of FCCBs, only eight companies have exercised the option, buying about $200 million worth of FCCBs.