India Inc may find FCCB clones to raise funds
The domestic convertible bonds (DCB) would allow investors to trade their debt component and equity option separately. Mkt Crash: Full coverage | Mkt Calendar
By Deepshikha Sikarwar, TNN |
NEW DELHI: India Inc may get a new financial instrument to raise resources, the domestic convertible bonds (DCB), which would allow investors to trade their debt component and equity option separately. The government is examining a proposal in this regard and a formal announcement is likely in Budget 2008.
The government wants to provide a domestic equivalent of the foreign currency convertible bonds that have of late become a popular fund-raising instrument with domestic companies. The instrument is also expected to energise the lacklustre debt market, sources said.
The new instrument would be like a convertible debenture making regular coupon and principal payments, and also give the bondholder the option to convert the bond into stock. However, in this case, the equity option can be stripped from the main instrument, rolled into a tradable derivative product. Thus, a DCB holder would be able to trade both the debt component and the equity option and enhance his yields.
The government wants to provide a domestic equivalent of the foreign currency convertible bonds that have of late become a popular fund-raising instrument with domestic companies. The instrument is also expected to energise the lacklustre debt market, sources said.
The new instrument would be like a convertible debenture making regular coupon and principal payments, and also give the bondholder the option to convert the bond into stock. However, in this case, the equity option can be stripped from the main instrument, rolled into a tradable derivative product. Thus, a DCB holder would be able to trade both the debt component and the equity option and enhance his yields.
| | Also Read |
| à | |
| à | |
| à | |
| à | |
| à |
However, the instrument will be largely aimed at institutional players, sources said. They added the active presence of institutional investors was important to bring liquidity in the debt market. It may be pointed out that globally debt markets are dominated by institutions. Deepening the debt market is high on the agenda of the government, which had set up a high-level committee under the chairmanship of R H Patil on developing the corporate bond market.
As a part of the measures to energise the debt segment, market regulator SEBI had made public a draft paper on simplifying issuance of debt instruments. It is proposed to allow companies to file a shelf prospectus so that they do not have to seek regulator's clearance every time they wish to make an issue.
During 2006-07, secondary market trades - both OTC and exchanges - stood at Rs 69,018 crore whereas primary issuances by corporates in the form of private placement during the period stood at Rs 93,989 crore as per information collected from SEBI.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
