We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Foreign Currency Convertible Bonds and Indian Rupee Essay Sample

The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 572
  • Category: money

Get Full Essay

Get access to this section to get all the help you need with your essay and educational goals.

Get Access

Foreign Currency Convertible Bonds and Indian Rupee Essay Sample

The Impact of INR depreciation on the Foreign Currency Convertible Bonds (FCCBs) issued by Indian Corporates A convertible bond is a type of corporate bond that the holder can convert, within maturity, into a specified number of shares of common stock (conversion ratio) of the issuing company. A foreign currency convertible bond (FCCB) is issued by a company in foreign currency in which the interest and principal payments are made in foreign currency. The FCCBs sit on the liabilities side of balance sheet and are directly proportional to the strength of the foreign currency. If the domestic currency weakens, the issuer has to make extra efforts to meet the interest and principal payment obligations.

FCCBs in India

FCCBs have been extremely popular with Indian Corporate for raising Foreign Funds at competitive rates since the IT boom in 1999 through automatic and approval routes. These are special channels that RBI and Ministry of Finance created to provide incentives to specific sectors like Infrastructure and Power in FCCBs.

Impact of the rupee depreciation on the Companies’ FCCBs

USDINR from Oct 2012 to July 2013. Source Google Finance

Top Ten FCCB Issuers as of May 2013

Total Sum = $2B of which 90% is in USD
Source: http://www.rbi.org.in/scripts/ECBView.aspx
Root Cause of Current Situation

Although India companies have been using FCCBs as a major finance-raising tool for meeting their capex requirement at competitive rates and the Indian regulatory regime has fully supported them in meeting financing needs, certain crucial aspects, in hindsight, seems to have been overlooked. Firstly, companies issuing FCCBs generally hedge their fx-exposure by increasing foreign revenue streams (typically IT companies) or pure currency hedging by market instruments.

However, Indian companies were under the over-expectation that bond holders would convert to equity and consequently have not been successful at insulating themselves from toxic FX exposure. Secondly, a blanket acceptance of constant dollar strength post 2008 crisis by the Indian Companies, while correct till 2011, has costed them dearly. By tapering QE, Fed has taken necessary steps to enhance dollar strength in world markets which also contributed to the rupee depreciation. Hence a combination of external as well as internal factors has contributed to the FCCB crisis.

Impact on Issuer

FCCBs put severe constraints on issuer when it’s share price is declining, as they have to be repaid either by raising debt at higher interest rates or through internal accruals. If the FCCBs do not get converted, it increases the debt equity ratio. If the FCCBs do get converted it leads to equity dilution. Either way, the company’s financials will be deteriorated. In the case of default, FCCB’s being the unsecured debt, doesn’t leave the issuer with much choice.

Although raising domestic debt and injecting equity are possible they are only options in theory as the global crisis has slowed the growth of Indian Companies and made them less able to seek further equity or new debt. Under current conditions, companies can utilize RBI-facilitated advantages like restructuring of FCCBs at a lower conversion ratio or buying back of issues or redeeming the FCCBs by refinancing at higher rates and longer maturities and postpone the principal payment burden. Even if such measures are out of question then the companies has to sell some of their assets and pay back the debts just like Suzlon did in Tamil Nadu in 2012. (Article Word Count = 498)

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

System of budget organization and an example...

The best method to monitor variance between actual and budgeted performance is “Budgetary control”. According to Brown & Howard, “Budgetary control” is “a system of cost control based on comparing actual performance with the budgeted and acting upon results to achieve maximum profitability”. Monitoring the organization’s performance by continuously comparing the actual results with the budgeted figures is of vital importance in any manager’s role....

Manage Money

S-A-L-E, SALE! My favourite four letter word. Hello, my name is Laurie...and I am a shopaholic. I am a person who shops compulsively and can't resist bargains. I go shopping at least three times a week. It was mandatory and I needed it to live. It was like my own brand of heroine. I believe that I need to go to shopaholics anonymous. From shirts...

Money Does Not Make A Good Person

What did one Visigoth say to the other Visigoth? Nothing, Visigoths don’t value language. I was once told that your values dictate that way you live, and so when you chose your values you are ultimately choosing what is important to you. Neil Postman, a highly regarded American author, media theorist, and cultural critic, said in his essay entitled My Graduation Speech "You must be...

How Do Charity Leaflets Persuade the Reader...

In this essay, I shall be focusing on two charity leaflets and comparing how they try to persuade the reader to donate money. The leaflets which I will be looking at are Oxfam's 'Ethiopia Appeal' leaflet, and Help the aged's campaign to 'Stop an older person being alone at Christmas'. The Oxfam leaflet is aimed at the NUT (National Union of Teachers), and the Help...

Decentralisation Has Been the Dominant Force in...

To what extent do you agree with the statement: ‘Decentralisation has been the dominant force in the UK in the past 50 years’? (40 marks) Decentralisation is the movement of people, money, and businesses out of central areas. This essay will show how the factors of suburbanisation, counter-urbanisation and out of town shopping centres have contributed to decentralisation. However, it will also illustrate how processes...

Get Access To The Full Essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Become a member

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59
Become a Member