Many Indian companies would have to restructure FCCB Bonds: S&P

MUMBAI: The slump in stock markets globally and the fall in the value of the Indian rupee against the US dollar over the past two years are hurting 48 Indian companies that have foreign currency convertible bonds (FCCBs) maturing in the rest of 2012, according to a report, titled ""Pileup of Indian Foreign Currency Convertible Bond Maturities Will Test Issuers And Investors,"" that Standard & Poor's ratings Services published today. More than half of these companies would have to restructure the bonds to avoid a default on payment.

""A tepid global economy has slowed FCCB issuers' revenue and profit growth, dragged down their stock prices, and left them less able to service debt,"" said Standard & Poor's credit analyst Vishal Kulkarni. ""Redeeming the bonds will also be challenging for many FCCB issuers because they have limited access to funds and borrowing costs are high."" Standard & Poor's does not rate any of these FCCBs.

The report notes that the restructuring options for these FCCB issuers include rolling over the bonds with later maturity dates and higher coupons; lowering the conversion-to-equity price and getting bondholders to accept only a partial repayment of their principal.

""Even the weakest companies that have FCCBs maturing in 2012 are unlikely to consider defaulting on the payment of their bonds as their first option, given the messy litigation process in cases related to corporate defaults,"" said Mr. Kulkarni.

Standard & Poor's expects troubles confronting FCCB issuers in 2012 to cause the worst-hit companies to shy away from such bonds. However, companies that are ready to issue bonds with reasonable expectations--with 5%-6% interest rate and a conversion premium of less than 20%--may be better positioned to attract investors, the report said.