Anil Ambani-promoted Reliance Communications [Get Quote] is set to be the first company to buy back foreign currency convertible bonds after the Reserve Bank of India [Get Quote] allowed premature buyback of such bonds through rupee resources as well.

R-Com had issued zero-coupon FCCBs in February 2007 to raise $1 billion. The bonds are now trading at a 35 per cent discount to the issue price. At this price, R-Com has to spend $650 million.

RBI has allowed FCCB buybacks through rupee resources provided the amount of the buyback is limited to $50 million and the resources are drawn out of the company's internal accruals.

The company has over Rs 10,000-crore (Rs 100 billion) in cash reserves ($2 billion at the current exchange rate). This includes about $600 million worth of investments in mutual funds overseas. Sources said the company can also convert a portion of the rupee reserves into foreign currency for the buyback, should the need arise.

RBI on Saturday allowed firms to buy back FCCBs prematurely through rupee resources after the central bank's earlier move to permit buybacks through forex found few takers owing to a dollar crunch.

Last month, the central bank had allowed companies to prematurely buy back FCCBs financed by their foreign currency resources held in India or abroad. However, to buy back these bonds through rupee resources, there has to be a minimum discount of 25 per cent on the book value, RBI said.

"R-Com's move will help it reduce the liability and forex exposure. The capital gain is attractive, so the company will not delay the buyback. The company has enough cash in its books and, if needed, it could raise part of the fund as debt," said sources.

R-Com's February 2007 FCCB issue was the country's largest bond offering. The previous largest deal from India was also by R-Com when it raised $500 million in May 2006. The $1 billion bond issue has a tenure of five years, until 2012, at a conversion price of Rs 661 per share.

The bonds were sold across Asia, Europe and the US and were over-subscribed three or four times within two hours of launch. The proceeds of the FCCB issue were used towards R-Com's capital expenditure of $2.5 billion in the last fiscal to expand its telecom network.

In its recent report, Global Absolute, a financial service provider in India, said the company would be able to meet its FCCB liability on the maturity date since it has a very comfortable liquidity position.

"It has low debt/equity ratio of 0.9 times in FY08, which is further expected to decline to 0.5 times by FY12," the report said.