FCCB redemption to peak in 2012-13: RBI

The redemption pressures on account of Foreign Currency Convertible Bonds (FCCBs) would start building up from 2010-11 and peak in the next couple of years till 2012-13, according to Ms Shyamala Gopinath, Deputy Governor, Reserve Bank of India.

FCCBs have constituted a significant part of the External Commercial Borrowings (ECBs) raised during the last few years, except for the sudden decline in the immediate aftermath of the crisis.

As of December 31, 2010, the FCCB redemption profile was: $1.169 billion in 2010-11; $3.622 billion in 2011-12; and $3.757 billion in 2012-13.

A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

In the financial year so far, total FCCB issuance amounted to $1.265 billion (or eight per cent of the total ECB of $15.994 billion).

In the current context, a high Current Account Deficit has been absorbing much of the capital flows in aggregate terms.

“The concerns, however, arise on account of the composition of flows coupled with lower order of reserves accretion and faster increase in external liabilities,” said Ms Gopinath at the Annual Conference of the Foreign Exchange Dealers' Association of India in Thimpu last week.