Foreign Currency Convertible Bonds (FCCBs)

Foreign Currency Convertible Bonds (FCCBs)

-A convertible bond is a quasi-debt instrument that offers investors a fixed coupon or interest rate over a five-year maturity of the bonds with an option to convert them into shares at a pre-determined price, often at a premium to the market price of the issuer.

-If this convertible bond is issued in a foreign currency and interest is payable in foreign currency, it is called as a Foreign currency convertible bonds (FCCB).

-In a bull market, several companies had issued FCCBs at a steep premium, hoping that stocks would continue to surge.

-Today, with share prices quoting at a fraction of what they were, these issuers are struggling to redeem the bonds.

-Due to the dismal share prices and bearish Indian and global markets, most of the investors are deciding against converting their bonds into equity and look to redeem them.

-Indian companies face convertible bond redemptions of nearly USD 5.5 billion this year.

- The Rupee Depreciation has increased the burden on the companies.

-Keeping in view the need to provide a window to facilitate refinancing of FCCBs by the Indian companies who may be facing difficulty in meeting the redemption obligations, the Reserve Bank has allowed the Indian companies to refinance/ restructure the outstanding FCCBs issued by them.

-Accordingly, Indian companies are permitted to raise fresh ECB/FCCB under the automatic route to refinance their outstanding FCCBs. The scheme has been extended till March 2013.