Foreign currency convertible bonds: An Indian perspective

Foreign currency convertible bonds (FCCBs) are bonds that can be converted into equity at maturity. FCCBs are an equity bull market instrument. If the share price of the issuer has fallen since the issue, the investor can ask, instead, for redemption of the bonds in cash. From the investors’ perspective, they get the advantage of an instrument which offers debt, as well as, the additional value of an option to convert the bond to equity. It gives the investor upside potential by being able to convert to equity, and the debt element protects the downside. They are also assured return in form of fixed coupon rate payments. The well performing companies with steady state operational cash flow, FCCB is one of the best sources of money as it is one of the best sources of cost effective capital, which may not be needed to be returned with marginal dilution of equity. This paper is an attempt to understand the concept and present scenario of Foreign Currency Convertible Bonds (FCCBs) in India.