What changed
RBI introduced two clear routes for FCCB buyback: an automatic route where AD banks can approve buybacks at a minimum discount of 15 per cent on the book value, and an approval route for buybacks at a minimum discount of 25 per cent on the book value up to USD 50 million of the redemption value per company. Previously, such buybacks were considered under the approval route. The automatic route now allows designated AD banks to process buybacks without prior RBI approval, subject to conditions.
What it means for you
Indian companies can now more easily reduce their FCCB liabilities by buying back bonds at a discount, using foreign currency funds or fresh ECB. For banks, this means increased processing responsibility under the automatic route, requiring careful verification of discount thresholds and fund sources. The approval route remains for larger or differently funded buybacks, with a USD 50 million cap per company.
What you must do
- Verify that FCCB buyback under automatic route meets minimum discount of 15 per cent on the book value and funds are from foreign currency sources or fresh ECB compliant with norms.
- For automatic route, ensure fresh ECB for buyback is co-terminus with the outstanding maturity of the original FCCB and if less than three years, all-in-cost capped at 6 months Libor plus 200 bps; for other cases, apply standard ECB cost ceilings.
- For approval route, confirm buyback discount is at least 25 per cent on the book value, total buyback per company does not exceed USD 50 million of the redemption value, and funds are from internal accruals with auditor and bank certificates.
- Submit approval route applications with supporting documents to RBI's ECB Division through the designated AD bank.
- Maintain records of all FCCB buyback transactions for regulatory reporting and audit.
Who it affects
All Category-I Authorised Dealer Banks, Indian companies with outstanding FCCBs, RBI's Foreign Exchange Department (ECB Division)
What is the minimum discount required for FCCB buyback under the automatic route?
Under the automatic route, the buyback value must be at a minimum discount of 15 per cent on the book value of the FCCB.
Can a company buy back FCCBs using internal accruals without RBI approval?
No, if the buyback is funded by internal accruals, it must go through the approval route, which requires a minimum discount of 25 per cent on the book value and is capped at USD 50 million of the redemption value per company.
What is the all-in-cost ceiling for fresh ECB used to finance FCCB buyback if the ECB maturity is less than 3 years and co-terminus with the original FCCB?
For fresh ECB with maturity less than 3 years and co-terminus with the original FCCB, the all-in-cost ceiling is 6 months Libor plus 200 bps.