Standard and Poor’s, an international ratings agency, on Thursday said about half of the 48 companies with Foreign Currency Convertible Bonds (FCCBs) maturing in the rest of 2012 might opt for restructuring, as refinancing would be difficult in current market conditions. Also, investors might not take the judicial route for recovery in case of default.
While only five of such companies are in a position to pay off their FCCB debt, 28 others will have to roll over the bonds with higher coupons or lower the conversion-to-equity price or get bondholders to accept only a partial repayment of their principal. “Companies will find themselves in a fix because of a tepid global economy. This has slowed their revenue and profit growth, dragged down their stock prices and left them less able to service debt,” said Vishal Kulkarni, credit analyst at S&P.
S&P said rupee depreciation had added to the woes. Most of the FCCBs maturing in 2012 were issued in 2007-08, when the rupee was about Rs 42 per dollar. It has since lost a little more than 30 per cent against the greenback. “This would add about $2 billion to the value of FCCB maturities in 2012,” said the ratings agency.
| READY FOR RESTRUCTURING | ||
| Companies likely to default | Amount due, including redemption premium (in $ million) | Maturity date |
| GTL Infrastructure | 320.55 | Nov 29,’12 |
| Pyramid Saimira Theatre | 122.56 | Jul 4,’12 |
| 3i Infotech | 93.86 | Jul 27,’12 |
| Zenith Infotech | 46.70 | Aug 17,’12 |
| XL Energy | 46.60 | Oct 23,’12 |
| Source: S&P | ||
Companies might have to shell out additional interest of $700 million a year if they manage to refinance the $5 billion of FCCB debt maturing in 2012. The Reserve Bank of India (RBI) has allowed companies to take the external commercial borrowing route to redeem FCCBs. The maximum interest rate allowed on such borrowings is Libor (London inter-bank offer rate) plus 500 basis points. “However, this option is available only to companies with strong credit profiles. Moreover, overseas branches of Indian banks provide most such loans and could be constrained by their sometimes limited access to dollars,” said the analysts at S&P in the report.
Loans from Chinese banks could come to the rescue but only for companies in the power and infrastructure-related sectors with import relationships to that country’s manufacturing companies.
Another option, of lowering the conversion price, would result in more shares for FCCB holders but the equity dilution would be higher for existing shareholders and the share price could, therefore, fall. Also. resetting the conversion price needs RBI approval.
S&P said many companies were in talks with bondholders to roll over maturing FCCBs with revised terms, and with banks to refinance the bonds.
