New FCCBs likely to result in future dilution for JP Associates

MUMBAI: Altough, Jaiprakash Associates was able to refinance its Foreign Currency Convertible bonds (FCCB) by the way of new FCCBs, the latest conversion price presents a likely scenario of conversion in future.

Jaiprakash Associates recently informed the exchange about the issue of FCCB of five year maturity worth $150 million. The company plans to use the proceeds of this issue to repay its earlier FCCB, which would mature in September 2012.

The conversion price in the new FCCB is set at Rs 77.5 per share, which is just 20% higher than the present stock price of Rs 64. Hence, the conversion of the latest FCCBs seems more likely in future. It is estimated that up to 5% of dilution may happen post conversion of the FCCBs.

As of March 2012, the company had a gross debt of Rs 44,000 crore, which is onre of the highest in the industry. A high debt overhang has led to the stock underperforming the broader CNX Nifty Index over the last one year.

The stock has fallen nearly 15% as against a 1% return by broader Nifty in the last one year. To reduce its debt, the company is planning to sell 51% stake in its cement plants at Gujarat and Andhra Pradesh. With the proposed stake sale, the company intends to reduce its debt by nearly Rs 4000 crore.