The Indian central bank has rejected a proposed restructuring of foreign currency convertible bonds (FCCBs) by Plethico Pharmaceuticals Ltd on ‘technical grounds’, according to the company’s chief financial officer Sanjay Pai. The company had approached the RBI for extending the deadline for repayment of outstanding FCCBs worth $75 million, which are maturing in October 2012.

In 2007, Plethico raised $75 million by issuing zero coupon FCCBs to investors for a period of five years. The company set the conversion price of the bonds at Rs 484 a unit. At the close of trading on April 16, its stock price on the BSE was Rs 340 a share. If the share price doesn’t spring back to the FCCB conversion level, the bondholders may make redemption call and the company would need to pay back the money.

Sanjay Pai, the company’s CFO, said in an e-mail message, “Plethico had approached the RBI in June 2011, which was not accepted, and Plethico has not approached the RBI again till date, hence the question of getting the RBI’s permission in that matter does not arise.”

Pai, however, did not clarify the mode of capital-raising that the company might adopt to meet the redemption due in six months. This follows an earlier report by VCCircle which said that Plethico had approached the RBI for extending the redemption deadline of its FCCBs.

At that time, the company spokesperson told VCCircle, “Plethico will make disclosure as required in the public domain before giving any private information.”

During the bull run, Indian promoters did not treat FCCBs as debt and did not provide for redemption, hoping that the stock markets would outperform and the rise in stock prices would result in conversions into equity without straining the resources.

But with the stock markets nosediving from January 2008, stock prices of companies have considerably suffered – resulting into fewer conversions into equity shares as it makes no sense for bondholders to convert at a higher price than the market price.

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