When the bonds mature, if the shares are trading above that price, bondholders can convert their bonds into equity. Initially it was in the news as a great tool for raising funds for meeting company’s capex requirement. But as the maturity date nears, many companies have either already begun negotiations – usually asking for more time – or started the buyback process. There are now a number of fund-raising alternatives available to Indian companies, including the plain-vanilla foreign currency bond market which has become far more accepting of Indian credit. With the maturity date less than a year away, the company has started buying back the bonds. INH hereinafter referred as ‘Equitymaster’ is an independent equity research Company.
The big question is: In the meantime, you may want to share this article with your friends! According to a Crisil report, bonds worth Rs 31, crore are coming up for redemption within the next 24 months. In fiscal year , Wockhardt had posted a loss of Rs. Equitymaster requests your view!
More Views on News. Equitymaster requests your view! This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such caze or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. The share price fell below the conversion price, and the company failed fcch pay the investors when it cae up for redemption.
The bonds were converted after shares went above a pre-fixed price ECBs might give companies some breathing room for now, but these borrowings could come at an interest rate of one to five per cent over the London Interbank Offered Rate – the world’s most widely used benchmark for shortterm interest rates.
All fields Reference no. Information herein should be regarded as a resource only and should be used at one’s own risk. The advantage it offers relative to other debt instruments like straight bond is that being a foreign currency instrument, it carries lower interest rates. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.
When FCCB turns ugly: Part I – Views on News from Equitymaster
This article explains FCCBs and these developments. Equitymaster is not an Investment Adviser. The 5 Minute Wrapup. Because the casse were large and had the potential to a pose a systemic risk, regulators were forced to intervene.
Restless at redemption
Some in the market are arguing that Sebi should intervene to protect the integrity of the market. As markets continue to rattle amid earning season, upcoming elections, volatile crude price and US China trade war, it’s a great idea to add some stability to your portfolio by adding dividend stocks. This has restricted the use of the product over the past few years.
The market capitalisation of Hotel Leela Venture has nosedived from around Rs 2, crore in to about Rs 1, crore today. Companies prefer issuing FCCBs as the interest rate on them is much lower than that on a regular “domestic” bond. Wait for it… Log in to our website to save your bookmarks.
The Murphy’s law of foreign currency convertible bonds
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Therefore, Wockhardt had to look for other sources of funds Initially it was in the news as a great tool for raising funds for meeting company’s capex requirement. The phone services firm is in a muddle, but analysts are still slightly more optimistic about the fund-raising abilities of big boys like RCOM, than syudy small and ffccb companies.
The green energy major reported a sharp turnaround in the March quarter, but the stock has mostly remained flat so far.
The thinking was that the since the FCCB crisis was brought on by external factors the global financial crisisregulatory intervention was justified and needed. With the euro crisis, and the market correction deeper than anticipated, companies are exploring other ways to raise funds.
However, between the time the conversion was triggered and the gccb were allotted, shares of Castex plunged to just My account New to us? The pharma company was finding it difficult to raise debt at competitive rates in India.
This, in turn, meant that these bonds could not be converted into equity and Indian firms were left staring at huge redemptions. When the bonds mature, if the shares are trading above that price, bondholders can convert their bonds into equity. Nair, the founder of Leela, hold FCCBs as an investment instrument are old, but nearly 70 per cent of the FCCBs currently held by Indian companies were issued only about five years ago – during the euphoria of the bull stury.
In the most likely scenario of “mass” redemptions of FCCBs inthese companies will choose to exercise one or a mix of the options mentioned below:.