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Guidelines for Prepayment of Foreign Currency Convertible Bond (FCCB)
Issues by Indian Companies
A.P.
(DIR Series) Circular No. 88 dated 27th March 2003
Attention
of authorised dealers is invited to A.P. (DIR Series) Circular No. 29 dated
March 11, 2002 allowing an Indian company or a body corporate, created by an Act
of Parliament, to issue FCCBs under the automatic route without the approval of
Government or the Reserve Bank.
2.
Government of India has since decided to allow Indian companies to prepay
the existing FCCBs and accordingly has issued Press Note dated February 5, 2003
notifying the Guidelines for prepayment of FCCB issues by an Indian company
(copy enclosed). It will, therefore, be in order for authorised dealers to allow
Indian companies to prepay the existing FCCBs subject to the conditions
stipulated in the Press Note referred to above.
3.
Authorised Dealers may bring the contents of this circular to the notice
of their constituents concerned.
4.
The directions contained in this circular have been issued under Section
10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of
1999).
PRESS
NOTE
Guidelines
for Prepayment of FCCB Issues by the Indian Companies
A
Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipts Mechanism) was notified by the Government of India
in November 1993. Revisions/ modifications in the operative guidelines for
Euro-issues are announced from time to time.
2.
With a view to further liberalising the scheme, it has been decided by
the Government to allow Indian companies to prepay the existing FCCBs subject to
the following conditions: -
(a)
This provision of pre-payment (premature purchase) of existing FCCBs will
be available upto 30th September 2003. The existing condition of
minimum maturity period for redemption of bonds (i.e. 5 years) is put on hold
till 30th September 2003.
(b)
The initiation power/ right of prepayment is vested with the issuer of
Bonds and not with the holder of bonds. However, the actual pre-payment is
subject to the consent of the holder of the bond.
(c)
The pre-payment should be at most the face value of bonds and not
exceeding the face value (inclusive of all expenses for such buy-back).
(d)
The bonds purchased from the holders must be cancelled and should not be
re-issued or re-sold.
(e)
The funds resources for making such prepayment by the Company shall not
be by resorting to fresh external debt.
(f)
This prepayment scheme of FCCBs will not have any effect on the
bondholders of Indian Companies not opting this window or on the
non-participating bondholders of Indian companies opting this window.
3.
This scheme is available under automatic route upto a limit of US $ 100
million if the prepayment is made out of local resources and without any limit
if prepayment is out of EEFC funds or inward remittances towards equity subject
to the fulfilling of the conditions mentioned in para 2 of this guideline.
4.
After completing the transactions, the companies would be required to
furnish full particulars thereof including the number of bonds repurchased (i.e.
prepaid), the rate of repurchase (including expenses, if any), the number of
residual bonds, source of funds to the Ministry of Finance & Company
Affairs, Department of Economic Affairs and the Foreign Investment Division,
Exchange Control Department of the Reserve Bank of India, Central Office, Mumbai
within 30 days of completion of such transactions.
5.
All transactions under this scheme shall be performed on or before 30th
September 2003.
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