Fifty-six companies, including Tata Motors and JSW Steel, will possibly have to pay $700 million in additional interest if they restructure the $5-billion foreign debt that is due for redemption this year, according to a recent report released by global rating agency Standard and Poor’s.
The report attributed the problem to the steep slump in the stock valuation since the time of the foreign currency convertible bond (FCCB) issuance, which, in turn, is exacerbated by the fall in the rupee.
The companies had initially issued the bonds, most of which are dollar-denominated, during 2006-2008, before the global economic slowdown hit - when the rupee was trading at 48 to a dollar.
Restructuring options
The depreciation of the rupee against the dollar, a 30 per cent drop over the last two years, has added a redemption amount of about Rs. 100 crore. According to the report, companies can restructure the bonds in three different ways; rolling over the bonds with later maturity dates and higher coupons, lowering the conversion-to equity price or convincing the bondholders to accept partial repayment of the principal. Of the rated entities, Tata Motors is likely to redeem its FCCBs at manageable costs this year and Tata Steel has already rolled over the maturity of its bonds.
Standard and Poor’s Rating Services fears that out of the 48 companies it has rated, over half may default.
