The Impending FCCB Conundrum

Foreign currency convertible bonds (FCCBs) have been issued by Indian companies, whereby investors have the option to convert these debt instruments into equity. Such conversion would normally occur when the market price of equity shares at the time of conversion is higher than the conversion price. But, with the markets now moving in the wrong direction, it is unlikely that the FCCB holders will exercise their conversion options. That means they will likely redeem the FCCBs, which partake the nature of repayment of debt. An event less expected by Indian borrowers, this would not only impose huge financial burden on Indian borrowers (who have to raise the cash to meet their obligations), but could also result in various accounting and other related issues.

These aspects have been covered in detail in this column by Rajrishi Singhal in the Economic Times.

(For more on FCCBs, and how they are different from Foreign Currency Exchangeable Bonds (FCEBs), please see this earlier post)

Update – July 10, 2008: See also this column in the Hindu Business Line

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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