India Inc stares at Rs 7.6K cr default in FCCB repayments

In the event of default on FCCB payment,the recovery may be low given their unsecured nature and lack of provisioning and hedging by the issuer to manage the currency fall.

India Inc is likely to default around Rs 7,600 crore on repayments of foreign currency convertible bonds (FCCBs) this year in the wake of weakened cash flow,unsustainable debt levels,existing default status and now the rupee depreciation.

Investment bankers and rating agencies estimate that as many as 59 Indian companies face redemption of $7 billion (around Rs 38,000 crore) in 2012. Fitch Ratings says that about 63 per cent of the amount due is likely to be repaid from a combination of internal accruals and fresh borrowings. Of the balance,17 per cent is expected to undergo restructuring (mostly maturity extensions) while the remaining 20 per cent is likely to default with ensuing restructuring,possibly having significant distressed debt exchange features.

Of a group of 20 corporates,at least eight have already defaulted on other debt obligations and the prospect of recovery actions by domestic lenders against a number of these companies is high.

In the event of default on FCCB payment,the recovery may be low given their unsecured nature and lack of provisioning and hedging by the issuer to manage the currency fall.

Many corporates are working overtime to tackle the FCCB repayment issue and some have approached the RBI for relaxation in rules. FCCB bondholders of Zenith Infotech have taken the firm to the court on repayment issue.

Others are asking for more time. We are at an advanced stage of raising up to $300 million with our senior secured lenders for the refinancing of our June FCCB obligations. In order to ensure there is adequate time for the necessary requisite approvals and administrative documentation,we have asked our bondholders for an extension of maturity of up to 45 days, said Kirti Vagadia,CFO,Suzlon Group.

A bank official said corporates are not taking adequate hedging and provisioning to manage currency risk.