Project Complied by:<br />World of FCCB<br />Foreign Currency Convertible Bond<br />PrafulAnchaliya Sabina Islam Sahil Jain Vijay Krishna<br />
Objective<br />Understanding of FCCB<br />Conversion of FCCB<br />Awareness of FCCB<br />Why should companies go issuing FCCBs & Why should investors invest in them?<br />
FCCBs & its features<br />Foreign Currency Convertible Bond (FCCB) - Mix <br /> between debt and equity instruments<br />A quasi-debt instrument attractive to both investors and issuers <br />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<br />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<br />
RBI GUIDLINES<br /><ul><li>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</li></li></ul><li>Structure<br />Capital in $<br />Issuer of FCCBs<br />Lender of money<br />FCCBs<br />29-Apr-2009<br /><ul><li>raises money in dollars
equity dilution</li></ul>29-Apr-2014<br /><ul><li>makes windfall profit by selling equity at prevailing market prices (say Rs 200)</li></ul>If markets are good…<br />If markets are bad…<br />Capital in $<br />Issuer of FCCBs<br />Lender of money<br />FCCBs returned<br />29-Apr-2014<br /><ul><li>redeem bonds at par value
IVRCL INFRA…<br />1 Bond is worth Rs. 1000/- (say)<br />Conversion Price = Last trading price<br />Last trading price = 369.95<br />Market expectation = 400, since the rise.<br />
Recent FCCBs<br />Reliance Energy has converted FCCBs of $112.84 million (about Rs 507 crore) into equity shares during the last 30 days<br />JPMorgan officials say the bonds were sought after aggressively and priced at an attractive yield rate of 4.95 per cent<br />The largest issuances were in the range of $500 million.<br />
To Conclude…<br />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.<br />Greater return potential if the stock price appreciates more than the previously fixed conversion price.<br />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. <br />Investors are mostly non-residents or hedge fund arbitrators.<br />Saves the risk of immediate equity dilution as in the case of public shares<br />Redeemable at maturity if not converted.<br />