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| Orchid takes ECB route to buy back FCCBs | |||
| 14 Jul 2009
: Orchid Chemicals & Pharmaceuticals has opted for the ECB (external commercial borrowing) route to partly buyback its foreign currency convertible bonds (FCCBs) that were available on huge discounts and bring down its debt to equity ratio. The company had recently redeemed $40.05 million worth face value of FCCBs, which were available at over 50 per cent discount to the earlier agreed price. In the process, it has reduced its outstanding FCCBs to $154 million from $194 million. Orchid had earlier gone in for two FCCB issues of $19 million, coming up for redemption in October 2010, and $175 million due in February 2012. Both were ‘zero’ coupon bonds with a yield-to-maturity rate of 7.87 per cent and 7.25 per cent respectively. “We felt it expedient to go in for ECBs from banks to buyback these FCCBs, which were available at a significant discount. The window is available until the end of this year to effect further buyback if there is an opportunity,” K Raghavendra Rao, promoter and managing director, Orchid Chemicals & Pharmaceuticals, told Financial Chronicle. The move has helped the Rs 1,300-crore company to bring down its debt to equity ratio to a reasonably comfortable 1:2, from a staggering 1:3 prior to the buyback. While the company’s capital, including equity, is around Rs 688 crore, the total debt, including FCCBs, hovered around Rs 1,900 crore. Going forward, the company aims to bring it further down to 1:1.5 or even 1:1. “The ECB route option has given us a longer tenure for repayment as against the residual part of the FCCBs. It has brought in more stability as these FCCBs were available at a significant discount and also helped reduce the uncertainty on FCCBs, especially in terms of conversion,” Rao said. He agreed that given the present capital market scenario, not many FCCB holders would opt for conversion into equity. “In that case, we would have found ourselves in a corner, with the need to make a one-time bullet payment of $280 million sometime in February 2012, assuming all FCCBs come up for redemption coupled with the yield-to-maturity payments,” Rao explained. He is happy that lower stock prices and market scenario would deter FCCB holders from opting for equity conversion, which otherwise may result in further dilution of the promoters’ stake. In fact, just about a year ago, he was rattled by a takeover bid by Ranbaxy. |
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