General conditions for FCCB buyback applicable under both routes

Compliance The FCCBs that are proposed to be bought back should have been issued in compliance with the extant guidelines and registered with the RBI. Further, the issuer should not have any pending proceedings for contravention of the Foreign Exchange Management Act 1999 (FEMA). The FCCB buyback has to be completed by 31 March 2009 which would mean that the existing condition of minimum maturity period of five years in the case of FCCBs has been put on hold until then. The FCCBs bought back must be cancelled and cannot be re-issued or resold. The right of buyback is vested with the FCCB issuer but the FCCB holder's consent will be required for actual buyback. This would mean that the FCCB buyback will not have any effect on the FCCB holders not opting for the buyback. FCCB issuers are required to open an escrow account with the branch or subsidiary of an Indian bank overseas or an international bank to ensure that the funds proposed to be used for the buyback are earmarked and not used for any other purpose. After completion of the buyback procedure the FCCB issuer is required to make the following filings with the AD: ECB2 form prescribed under the guidelines issued from time to time by the RBI under the FEMA on ECBs (ECB Guidelines); and Report stating details of the buyback including outstanding amount of the FCCBs, book value of the FCCBs, rate at which the FCCBs were bought back, amount paid and the source of funds.

Limitation period Cancellation of FCCBs FCCB holder's consent

Escrow account

Filing requirements

Specific conditions for Automatic route

Specific conditions for approval route

Internal accruals

Buyback of FCCBs out of internal accruals is not permitted.

Discount on book value

The buyback of the FCCB is done at a discount of at least 15 per cent on the book value. Funds used for buyback are either out of: existing foreign currency funds held either in India (including funds held in an "Exchange Earners" Foreign Currency Account with an AD3 in India) or abroad; and/or fresh ECB is raised in conformity with the current ECB norms. If the fresh ECB is coterminous with the residual maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed six month LIBOR plus 200 bps; and in other cases as per the existing guidelines of RBI.

Funding for buyback

Buyback of FCCBs out of internal accruals is permitted subject to prior approval of the RBI and fulfilment of conditions listed below. The buyback value of the FCCB is done at a minimum discount of 25 per cent on the book value. The funds used for the buyback are: out of internal accruals, to be evidenced by the statutory auditor of the issuer and a bank's4 certificate; and the total amount of buyback does not exceed US$50m of theredemption value per company.