$4.7 bn worth of bonds yet to be cashed in have a conversion price 40% higher than the current stock price
Indian companies that raised money through Foreign Currency Convertible Bonds (FCCBs), a quasi-equity instrument, could well be staring a huge debt burden in the face because their stocks have fallen well below the level at which this debt would have been converted into equity.
Indian companies that raised money through Foreign Currency Convertible Bonds (FCCBs), a quasi-equity instrument, could well be staring a huge debt burden in the face because their stocks have fallen well below the level at which this debt would have been converted into equity.
An analysis of Bloomberg data reveals that the outstanding amount on all Indian FCCB issues—bonds that haven’t already been convert-ed into equity—is to the tune of $17.7 billion (Rs71,685 crore). Of this, $4.7 billion worth of bonds have a conversion price that is at least 40% higher than the current traded price of the stock.
If these bonds actually end up as debt, it would come as a rude shock for the firms. They have to pay interest on the bonds and may even have to resort to fresh borrowings in order to repay bond holders. It will also affect their debt-equity ratio and leveraging power.
It is still early to gauge the extent of impact; most bonds mature after 2011 and market situation can change. However, it is too early to gauge the extent of impact on Indian firms’ balance sheets as in most cases
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