Indian companies are considering buying back foreign currency convertible bonds estimated to be worth a total of $19bn after the central bank released new rules allowing the move in a bid to ease pressure on the rupee. The moves are aimed at enabling companies to unwind the bonds in an orderly fashion, with most of them coming due in the next few years.

Most of their conversion prices were set when the stock market was at its peak. There are fears that some companies that had banked on share prices continuing to climb might be unable to afford to repay their convertible bonds when they come due and could be forced into panic refinancing. Some companies’ share prices have fallen so much, their convertible bonds are worth more than their market capitalization.

The new rules allow the companies to apply to the Reserve Bank of India for permission to buy back the bonds, most of which are trading far below face value, using their existing foreign currency holdings or new foreign exchange borrowings.

“This is perhaps a good opportunity for me. My foreign currency convertible bond is 50 per cent below par,” said one executive of a large Mumbai-listed company, who declined to be named for regulatory reasons.

Indian companies resorted to convertible bonds as a convenient way to raise cheap debt when the country’s stock markets were gripped by exuberance between 2004 and 2007.

But since its heights in January and February approaching 21,000 points, the Bombay Stock Exchange’s benchmark Sensex index has plunged about 56 per cent.

Small companies are among the worst affected. Firstsource Solutions, a business process outsourcing company, has a foreign currency convertible bond worth an outstanding $275m – more than double its market capitalisation.

Another larger group, Suzlon Energy, a wind energy company, has a $500m convertible bond that is trading at about half its par value and would be ripe for a buyback.

But analysts and bankers say the problem for companies will be whether they have the cash to buy back their bonds.

“This move is positive as it would enable corporates to buy back at the prevailing discounted rates,” said Citi economist Rohini Malkani in a research note.

“But the key is whether corporates have existing foreign currency funds, as raising fresh money today appears difficult.”

In related measures, the stock market regulator, the Securities and Exchange Board of India, eased regulations limiting the holdings of controlling shareholders in their companies.

Under the new rules, controlling shareholders, known as “promoters”, can increase their holdings at a rate of 5 per cent a year to 75 per cent from a former limit of 55 per cent, without making an open offer.