Indian firms to face testing times on FCCB redemption woes

Foreign currency convertible bonds (FCCBs) worth around 315 billion (USD 7 billion) are due for redemption over the next two years with more than 80% of the outstanding FCCBs trailing below their conversion price, a study by Crisil Research showed.

This would mean that FCCBs worth Rs 22,000-24,000 crore may not get converted into equity shares, Crisil said.

The report said bonds worth Rs 22,000-24,000 crore could be either redeemed or see a fall in their conversion price, which would lead to more equity dilution and a fall in share price.

Refinancing FCCBs with fresh debt will increase the interest burden of companies as most of the FCCBs carry very low or zero coupon rate.

A large number of FCCBs were issued during 2006 to 2008 when the stock markets were buoyant and the conversion prices were set at a steep premium to the then prevailing prices.