The World of FCCBs
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The World of FCCBs



Foreign Currency Convertible Bond & it's features

Foreign Currency Convertible Bond & it's features



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The World of FCCBs The World of FCCBs Presentation Transcript

  • Project Complied by:
    World of FCCB
    Foreign Currency Convertible Bond
    PrafulAnchaliya Sabina Islam Sahil Jain Vijay Krishna
  • Objective
    Understanding of FCCB
    Conversion of FCCB
    Awareness of FCCB
    Why should companies go issuing FCCBs & Why should investors invest in them?
  • FCCBs & its features
    Foreign Currency Convertible Bond (FCCB) - Mix
    between debt and equity instruments
    A quasi-debt instrument attractive to both investors and issuers
    Acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock
    Investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock
    • Company can issue FCCB only upto value of USD 500 million in a single year. However issue of FCCBs exceeding USD 500 mn subject to approval of RBI.
    • Should be listed on BSE and NSE and minimum net worth during the previous three years should not be less than 500 crore
    • Minimum average maturity shall be 3 years for borrowing upto US $20 million and 5 years in case it exceeds US $20 million.
    • Can be raised through two route Automatic and RBI approval The automatic route is available to real sector i.e. Industrial sector, specially infrastructure sector-in India, while all other sectors have to take RBI approval
  • Structure
    Capital in $
    Issuer of FCCBs
    Lender of money
    • raises money in dollars
    • sets conversion price at premium (say Rs 125)
    • maturity period between 3-5 years
    • receives FCCBs
    • can trade FCCBs if in liquidity crunch
    Equity at conversion price
    Issuer of FCCBs
    Lender of money
    FCCBs returned
    • no need to pay in cash
    • issues equity at pre decided price (Rs 125)
    • equity dilution
    • makes windfall profit by selling equity at prevailing market prices (say Rs 200)
    If markets are good…
    If markets are bad…
    Capital in $
    Issuer of FCCBs
    Lender of money
    FCCBs returned
    • redeem bonds at par value
    • huge requirement of cash
    • buy back from market before maturity if traded at discount
    • redeem FCCBs at par value
    • principal investment comes back with small returns
  • Regards with FCCB
  • Rising Markets…
    1 Bond is worth Rs. 1000/- (say)
    Conversion Price = Last trading price
    Last trading price = 369.95
    Market expectation = 400, since the rise.
  • Recent FCCBs
    Reliance Energy has converted FCCBs of $112.84 million (about Rs 507 crore) into equity shares during the last 30 days
    JPMorgan officials say the bonds were sought after aggressively and priced at an attractive yield rate of 4.95 per cent
    The largest issuances were in the range of $500 million.
  • To Conclude…
    It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component.
    Greater return potential if the stock price appreciates more than the previously fixed conversion price.
    Conversion of bonds into stocks takes place at a premium price to market price. Conversion price is fixed when the bond is issued. So, lower dilution of the company stocks.
    Investors are mostly non-residents or hedge fund arbitrators.
    Saves the risk of immediate equity dilution as in the case of public shares
    Redeemable at maturity if not converted.
  • Foreign Currency Convertible Bond
    Thank You