The Hindu Business Line : $7.7 b raised via FCCBs in 2007, despite curbs

New Delhi, Feb. 1 Curbs on overseas borrowings notwithstanding, Indian companies ended up raising $7.72 billion in the form of Foreign Currency Convertible Bonds (FCCBs) in 2007, more than 43 per cent higher than the previous year.

“FCCBs are a good proxy for debt and hence companies that do not carry much debt find this instrument attractive. Also, investors can get assured returns and can look at equity at a later date,” said Mr Prithvi Haldea, Managing Director of PRIME Database, which is dedicated to tracking the capital market.

In August 2007, the Government had announced tightening of norms governing external borrowings, in a bid to check strong capital inflows. As part of this, borrowers raising external commercial borrowings of over $20 million would have to park the proceeds overseas for use as foreign currency expenditure for permissible end-uses.

The year 2007 saw Reliance Communications announcing the successful completion of $1-billion FCCB in the international markets. The proceeds were earmarked towards Reliance Communications’ capital expenditure during 2007-08.

Tata Steel — which acquired Anglo-Dutch firm Corus — raised $875 million in Foreign Currency Convertible Alternative Reference Securities (CARS) issue, including a $150-million green shoe option.

Other significant issuances included Tata Motors ($490 million), Jaiprakash Associates Ltd ($400 million), and JSW Steel ($325 million).

Reliance Communication Ventures had led the list of top FCCBs for 2006, when it raised $500 million in March. During the same year, Ranbaxy Laboratories raised $440 million, Reliance Natural Resources $300 million, Amtek Auto $250 million, while Aurobindo Pharma, Jubilant Organosys, and Mahindra and Mahindra raised $200 million each.

Convertible bond

FCCB is a type of convertible bond issued in a currency different from that of the issuer’s domestic currency and is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but also offers the option to convert the bond into stock.