Companies seeking to take the buyback route for FCCBs (foreign currency convertible bonds) amid sharp fall in the bond prices are approaching private equity investors to fund buy, an investment banker said.
The Reserve Bank had recently relaxed norms for companies opting for buyback of FCCBs. Over a dozen listed Indian entities have already approached the RBI for approving the buyback and many more are finalising their plans.
Jefferies India, a subsidiary of the US-based Jefferies Group, Managing Director and Country Head Sidharth Punshi said that over 200 companies have raised $20 billion in FCCBs over the last few years.
After the recent meltdown, majority of the FCCBs have been trading at a discount of 30-70 per cent to the issue price, he said.
FCCBs, which generally have a five year tenure are typically structured as zero-coupon bonds and have an option to convert into equity share of the company at any point in time before maturity at a conversion price decided at the time of issue.
Large institutional players abroad have been the investors in the FCCBs.
Punshi said the market for FCCBs is Over The Counter (OTC) and thus highly illiquid with very few buyers and sellers active at a given time. And even if some of them turn bearish, the price can crash.
Many companies want to buy back shares as it is a cheaper option than paying the full coupon (interest rate on the face value) and repaying the principal amount if they wait for the bonds to reach maturity.
But they do not have sufficient funds and hence are approaching private equity funds to help them in the exercise.
