Cos borrow abroad to buy back FCCBs

MUMBAI: Indian companies are borrowing money overseas to buy back the foreign currency convertible bonds that were issued by them and are now selling at a steep discount. Details on foreign loans, termed external commercial borrowings by the regulator, reveal that the major borrowers in March 2009 were telecom company Aircel, which received permission to raise half a billion dollars, and flag carrier National Aviation Company, which got a clearance for $136 million to fund their expansion plans.

The data also shows that six corporates were given the nod to raise funds abroad to repurchase FCCBs. Simbhaoli Sugars, KEI Industries, Grabal Alok Impex, Era Infra Engineering and JSW Steel was permitted to raise $10 million each and Orchid Chemicals got the go-ahead for $20 million. Following buybacks, the prices of Indian FCCBs have improved in the secondary market. Last week, the RBI further liberalised the norms for repurchase of FCCBs by allowing corporates to buy back FCCBs worth $100 million. The central bank has also extended the relaxed guidelines for international borrowing up to December 2009.

The numbers show that despite a relaxation in overseas borrowing norms, the trend of lower borrowing continued till the end of the fiscal. In March, the central bank had approved borrowings worth only $1.1 billion; this is around a fourth of the $4.4 billion raised in March 2008. In FY08, the funds raised through external commercial borrowings amounted to 20.5 billion. The total ECB sanctioned for the year, including FCCB, was $19 billion, compared to $22.6 billion sanctioned for the previous year.

In the second half of FY09, the RBI had substantially liberalised the overseas borrowing norms.