FCCB holders cash in on India boom
Many foreign investors have opted for premature conversion of bonds held in Indian cos into shares.
By Vijay Gurav, TNN |
MUMBAI: Investors holding foreign currency convertible bonds (FCCBs) appear to be more inclined to cash in on soaring valuations on the Indian bourses. As such, many foreign investors have opted for premature conversion of bonds held in Indian companies into shares.
In May, at least 10 companies converted FCCBs into equity at a price decided when the bonds were issued to respective investors. The list includes NIIT, Bharti Airtel, Sun Pharma, Glenmark Pharma, Amtek India, Jain Irrigation Systems and Maharashtra Seamless. FCCB holders have witnessed a significant rise in value of their investments in these companies on the back of a sharp rise in share prices since allotment of the bonds.
Investment banking sources say FCCB has emerged as one of the favoured medium of raising funds from overseas investors over the past few years. FCCB is a debt instrument with 5-year maturity period. The conversion price, which is generally at 20-25% premium to the prevailing market price, is fixed taking into account earnings potential of a particular company. The face value of each bond can range from $10,000-1,00,000.
“FCCB offers thrive, especially when stock market and the economy are booming. Investments are made with an objective of generating certain amount of returns and reinvesting the money in other instruments. Once expected returns are earned, investors can exit without waiting for maturity of the bonds,” says Kiran Vaidya, head of investment banking, Religare Securities.
Corporates are also benefited in that they can raise funds at a premium which is added to reserves and helps strengthen their net worth position, he said. NIIT had issued FCCBs worth $10 million to Intel Capital (Cayman) in 2005. The bonds have been converted into 21,88,000 shares at a price of Rs 200 per share, at a sharp 80% discount to Tuesday’s closing of Rs 993 on the BSE. The value of Intel Capital’s investment in NIIT has soared from Rs 44 crore to Rs 217 crore in about two years.
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Telecom major Bharti Airtel is another example where the company has converted FCCBs worth $6.5 million into 12,14,307 shares at a price of Rs 232 per share. The conversion price is at a 72% discount to the current market price of Rs 837. The bonds were allotted in May 2004 for Rs 28-29 crore while their current market value stands at Rs 102 crore. The company has not disclosed the names of the investors whose bonds have been converted into equity.Sun Pharma has converted FCCBs worth $8.4 million into 5,18,417 shares at a price of Rs 729 per share. While conversion value of the bonds was Rs 38 crore, the current value on the basis of Tuesday’s closing price of Rs 1,093 works out to Rs 57 crore.
Jain Irrigation Systems has issued 4,68,514 shares to leading foreign investor Morgan Stanley & Co on conversion of FCCBs worth $3.65 million. Morgan Stanley’s investment in the company has risen from Rs 16 crore to Rs 22 crore.
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