Foreign Currency Convertible Bond Woes of India Inc. - What are FCCB's and the Problem therein

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Generic Information about FCCB to understand concept of FCCB - Please refer the relevant prevalent guidelines of RBI from time to time for acting on professional matters.

Foreign Currency Convertible Bonds are issued in India in accordance with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, as amended and supplemented from time to time.  FCCB are bonds issued by an Indian company, which are subscribed by non-residents in foreign currency and have the following features : -

• They are convertible into equity shares, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments, at the option of the Non resident investor;
• Are entitled to a low interest rate on the Bonds;

These Bonds were generally issued by the issuing companies at very high price vis a vis the existing market price of shares in 2005-2006. Now when the redemption time has arisen, the prices of the shares are well below  redemption price, because of which conversion option is  not exercised by the non resident Investors for such shares. Hence the issuing companies are suppose to redeem them at issue price and accrued interest, as applicable. However, since raising of funds has its own challenges, and one needs to keep the regulatory guidelines in mind, options are limited, but the relevant authorities are working on the matter to come up with possible solutions.

The attached Video explains the basic concept of what FCCB are and what is the problem associated with these FCCB as they come up for redemption.