Foreign Currency Convertible Bonds

This paper examines the role of Foreign Currency Convertible Bonds (FCCBs), its nature, problems and relevant current issues in relation to foreign investment in India. FCCBs play a pivotal role in foreign investment in India. It is an important instrument to raise funds from the International financial institution outside India. The RBI’s report on FCCBs itself states that Indian Companies which issued FCCBs, are facing the problem of redemption which is further resulting in winding up or selling of assets or in some cases buying back the issued bonds to meet their liability. The companies that hoped to issue equity in place of the bonds are now expected to almost certainly repay since the conversion price of the bonds, fixed at the time of its issue, is far higher than the market price. As per the RBI’s report FCCB redemptions are set to peak in June 2012 when over $1.1 billion of bonds will mature. The Foreign Currency Convertible Bonds are issued by the companies in case when it needs a great amount of fund on low coupon rate. But presently FCCBs bonds of many companies are due and they have to pay to the bond holders the amount that is definitely lower than their expansion of business program, as the profits have to be used to meet the liability. Considering the present scenario, the main focus of this Paper is to examine the contemporary issues related to FCCBs.