Govt Allows Repricing of FCCBs

The government has allowed companies to reprice their FCCBs on par with QIPs. GoI has provided a six month window to reprice the FCCBs.

These companies can now revise their FCCB conversion price to the average weekly high and low share prices for the two weeks prior to the relevant date, which is the date the board decided to issue the securities. This is against the previous minimum conversion price that had to be determined as the higher of the average for six months and two weeks.

As lower conversion price means more dilution government has attached conditions to any move to reprice outstanding FCCBs in order to safeguard existing shareholders.

Conditions

• The issuing company needs to get the approval of its board as well as shareholders.

• The companies need to make sure that make sure that the prevailing FDI norms are not breached once the bonds are converted into equity.

• The issuing companies have to enter into fresh agreements with FCCB holders over the conversion price.

• The deal would have to be cleared by RBI.

This move will help the companies which have issued bonds before the market crash. The companies issued FCCBs at the time when the market was in a bull run. The market prices of shares in these cases are way below the FCCB conversion price.

In such cases, investors would prefer to redeem bonds instead of converting them into shares, which would put more pressure on the financials of the issuer.

List of FCCBs Maturing in 2010 and 2011 (Here)

Reference: LiveMint

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