Now a bailout fund to help companies redeem FCCBs

Indian companies whose foreign currency convertible bonds(FCCB) are set to mature this year and are facing problems in paying them off can heave a sigh of relief. According to an article in the Business Standard, the government and the Reserve Bank of India are in discussions to create a fund to help redeem FCCBs.The RBI expects $4-5 billion FCCBs to come up for redemption this year.

FCCBs are a major cause of concern for Indian companies as they are facing a tough time in paying off these loans. Rating agency Standard & Poor’s had said in their report that it expects as many as half of the 48 companies whose FCCBs are maturing in the rest of the year 2012 to default this year due to a slump in the domestic stock markets and the rupee. It expects $5 billion worth of foreign loans to mature this year.

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The sharp depreciation of the rupee against the dollar over the past year is expected to increase the redemption amount of maturing FCCBs in rupee terms. Most of these loans which are maturing this year were issued in 2007-2008, when the rupee was about Rs 42 to the dollar. Now it has fallen to Rs 57 levels and this will add to the companies financial burden.

The Business Standard, however, said the size of the fund is still to be decided.

The companies that have already been affected include Wockhardt Ltd, Cranes Software International, Aftek, JCT Ltd, Venus Remedies, Marksans Pharma, Mascon Global, Gremach Infrastructure Equipments And Projects , Pyramid Saimira Theatre , and Zenith Infotech as they have defaulted.

Some companies that can possibly default in their loans, as per S&P, are Murli Inds, Prithvi Information Solutions, KLG Systel, Pokarna Ltd, Websol Energy System and Wanbury Ltd ( see chart ).