After external commercial borrowings, the Centre has today decided to allow prepayment of foreign currency convertible bonds (FCCB) also.
In a statement, the finance ministry has said that premature purchase of existing FCCB would be allowed up to 30 September, 2003.
The ministry has also waived the minimum maturity requirement of holding these bonds for five years.
The relaxation comes at a time when the government has been easing the controls on the use of foreign exchange because of the mounting forex reserves in the country.
It is also intended to help corporates who may wish to switch over between the easy interest rates available in the domestic market compared with that available abroad.
The finance ministry has however said that approval for redemptions would be automatic for up to $ 100 million if the prepayment is made out of local resources, and without any limit if the same is done from out of exchange earners foreign currency funds or inward remittances.
In the last budget, approvals for undertaking FCCB up to $50 million was put under the automatic route.
The release adds that the company cannot resort to fresh issue of external debt to generate the resources required to make such prepayment.
Besides the company as issuer of bonds will have to obtain the consent of the holder of bonds for the measure. Accordingly the scheme would not have any effect on the bondholders of the companies who do not wish to avail this window.
The Centre has also stipulated that the bonds repurchased from the holders would have to be cancelled and should not be reissued or resold, as this might create an arbitrage opportunity.
To ensure compliance, the companies would have to furnish the details to the finance ministry, within 30 days of the completion of such transactions.
Also, the pre-payment has to be at the face value of the bonds only which must include all expenses for such buyback.
