MUMBAI: Reliance Communication has become the first corporate to buy back its bonds in the international market. The corporate is taking advantage of the recent RBI guidelines allowing use of rupee resources to buy back bonds worth $50 m. Once this tranche is over, the company will also look at buying back using forex from the market. Bankers said that a host of other companies have also applied to the Reserve Bank of India for approval to buy back bonds.

RCOM had raised $1.5b through the FCCB route of which around $1.287 b have not yet been converted. Sources said that the company has started buying back bonds which were coming up for maturity in May 2011. Out of the original tranche of $500 m, around $297 m of bonds are still left for conversion. The conversion price of these bonds are at Rs 480.68 while the current stock price is at Rs 213.50.

The first trade has been done at a discount of 45%-50% to the face value, amounting to Rs 125 crore. This would mean the company would be able to able to buy back bonds of around $100 m (Rs 480 crore) on the back of a steep discount of around 50%. The corporate has authorised JP Morgan to do the FCCB buy-back. Banking sources said corporates are trying to negotiate with bigger funds who could be distress sellers because of redemption pressure.

Incidentally, the past few days have seen a rally in the markets. One of the reasons was that many of the hedge funds which have been facing investor redemptions have put their illiquid portfolio like bonds and loans in a separate portfolio. This has helped easing off a distress sale of bonds. These funds also want to take advantage of the the prices have started going up as some of these funds have started taking advantage of the fact that corporates have been looking at buying back these bonds.

Sources said the corporate could look at buying back an addition $250-300 m from the market through forex resources. An RCOM spokesperson declined to comment, saying only, “We are committed to enhancing shareholder value and are continuously evaluating various opportunities”.

The RBI had said corporates could buyback their FCCBs if they use their forex resources held in India or overseas or raise fresh ECBs, provided there is a minimum discount of 15% on the book value of the FCCB.

They could also buyback FCCBs out of rupee resources provided there is a minimum discount of 25% on the book value and the resources for buyback are drawn out of internal accruals of the company as certified by the statutory auditor. It has, however, limited the rupee buyback at $50 million of the redemption value per company.