Foreign Currency Convertible Bond FCCB Definition

Foreign Currency Convertible Bond FCCB Definition

Additionally, if the company’s share price does not reach the conversion price, bondholders may choose not to convert their bonds, resulting in a higher debt burden for the company. The conversion price is the price at which the bond can be converted into equity shares. This conversion price is usually set at a premium to the current market price of the company’s shares, providing an incentive for bondholders to convert their bonds into shares. The conversion ratio determines the number of shares that can be obtained by converting one bond.

As FCCBs are denominated in foreign currency, issuers can use the proceeds to fund overseas operations or acquisitions, reducing their exposure to exchange rate fluctuations. FCCBs possess several unique features that differentiate them from traditional bonds and make them attractive to both issuers and investors. When a company decides to issue a Foreign Currency Convertible Bond (FCCB), it typically follows a specific process. First, the company needs to determine the terms and conditions of the bond, including the conversion price, interest rate, maturity date, and any other relevant details. One of the advantages of FCCBs is that they provide companies with a lower cost of capital compared to other financing options, such as equity or traditional debt.

  1. The bonds allow companies to raise funds in a foreign currency, which can be advantageous if the company operates in multiple countries or has significant foreign operations.
  2. FCCBs have gained prominence in recent years, with many companies across industries and regions choosing this financing method to access international capital markets.
  3. This can make it difficult for investors to buy or sell the bonds in the secondary market, potentially impacting their ability to exit the investment.
  4. It may be noted that issuing company is to be the part of promoter group of offered company and the offered company is to be listed and be eligible to receive foreign investment.
  5. Let’s understand what are foreign currency exchangeable bonds, who regulates them and their maturity, among others.

The coupon payments and principal repayment would be made in foreign currency to the investors. At the maturity date, they would have the option of converting the bond into shares of the company. If the share prices fall below the conversion rate, bondholders would rather redeem the principal amount. Foreign currency convertible bonds, as the name suggests, are bonds that are issued in a currency foreign to the investor. The name also suggests that the bonds are convertible in nature, indicating that investors not only receive principal and coupon payments but also offer the option of converting their bonds into stocks. Foreign currency convertible bonds are issued in a currency foreign to the investor.

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The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. As global economic conditions continue to change, FCCBs are expected to maintain their prominence as a key financing option for companies seeking to diversify their funding sources and seize opportunities in the international market. In recent years, the FCCB market has experienced significant growth, driven by a growing number of issuers exploring international markets for funding. After the allocation process, FCCBs are listed on a stock exchange, typically in the jurisdiction where they were issued.

Redemption of FCCBs

●    Since they are equity-linked debt securities, the holder can transfer the bond into equity or depository receipt after some time. ●    The funds collected through the FCCB will be used according to ECB guidelines. Foreign currency convertible bonds (FCCBs) are issued by a company to non-residents giving them the option to convert them into shares of the same company at a predetermined price. On the other hand, foreign currency exchangeable bonds are issued by the investment or holding company of a group to non-residents which are exchangeable for the shares of the specified group company at a predetermined price. The term Foreign Currency Convertible Bond (FCCB) is significant in the finance/banking sector because it combines debt and equity advantages.

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The benefits of investing in an FCCB include the potential for capital appreciation if the underlying equity shares of the issuer appreciate in value, as well as the regular interest payments that are made to bondholders. FCCBs work like regular convertible bonds, but with the added feature that they are issued in a foreign currency. This allows issuers to tap into a wider pool of investors and raise capital at a lower cost than they might otherwise be able to. As FCCBs are denominated in foreign currency, investors are exposed to foreign currency risk due to potential fluctuations in exchange rates.

Foreign Currency Convertible Bonds (FCCBs) offer a unique financial instrument that combines debt and equity features, allowing companies to raise capital from international investors. The conversion option provided to bondholders adds an extra level of flexibility, making FCCBs an attractive option for both issuers and investors. ●    When a non-resident investor transfers foreign currency convertible bonds to another non-resident investor, it isn’t considered a capital gain. Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specified period. Thus a holder of FCCB has the option of either converting it into equity share at a predetermined price or exchange rate, or retaining the bonds. A foreign currency convertible bond can be issued with a call or a put option.

If it is issued with a call option, the issuer can redeem the bond before the maturity date by paying off the principal amount to the investors. Similarly, if it is issued with a put option, investors can redeem the principal amount from the bond issuers before the maturity date. A Foreign Currency Convertible Bond (FCCB) is a unique type of bond issued by a company in a currency other than its domestic one. These bonds are convertible, meaning they can be converted into equity shares of the issuing company at a predetermined rate. They provide a dual advantage of not only getting a fixed return on the bond but also the potential for enjoying any appreciation in the equity value. Foreign currency convertible bonds are typically issued by multinational companies operating in a global space and looking to raise capital in foreign currencies.

These bonds can be issued along with a call option (whereby the right of redemption lies with the bond issuer) or put options (whereby the right of redemption lies with bondholder). A foreign currency convertible bond (FCCB) is a convertible bond that is issued in a foreign currency, which means the principal repayment and periodic coupon payments fccb meaning will be made in a foreign currency. For example, an American listed company that issues a bond in India in rupees has, in effect, issued an FCCB. ●    The demand for FCCBs reduces when the stock market is in a negative cycle.●    Ownership gets diluted, and earnings per share reduce with every issuer converting the bonds into stocks.

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If the issuing company relies on conversion but has to keep making payments during times of high exchange rates, it is extremely unfortunate for them. It can lead to a huge cash outflow and prevent companies from finding equity capital. ●    The coupon rates are usually lower than standard bank interest rates, which minimizes the cost of debt financing. ●    If converted, the company can lower its debt and gain equity capital.●    A favorable move in the exchange rate provides the company with a reduction in debt cost.

FCCBs can sometimes suffer from liquidity risk, as they may not be as widely traded as traditional bonds or equities. This can make it difficult for investors to buy or sell the bonds in the secondary market, potentially impacting their ability to exit the investment. Interest rate risk arises from the potential for changes in market interest rates to affect the value of FCCBs. An increase in market interest rates can lead to a decline in the bond’s price, resulting in capital losses for investors. is a part of ICICI Securities and offers retail trading and investment services. The “relevant date” means the date thirty days prior to the date on which the meeting of the general body of shareholders is held to consider the proposed issue. (c) Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. This website is using a security service to protect itself from online attacks.

On top of it, issuance of FCEBs should have limited effect on the share price of the Offered Company as there is no dilution of shareholding. It is important for companies and investors to carefully evaluate the advantages and disadvantages of FCCBs before deciding to issue or invest in them. Consulting with financial professionals can provide further guidance and insights. FCCB are issued by a company which can be redeemed either at maturity or at a price assured by the issuer.

Essentially, it is a type of corporate bond that the holder can convert into equity or cash at a specific rate and time. An FCCB investor can purchase these bonds at a stock exchange, and has the option to convert the bond into equity or a depositary receipt after a certain period of time. Investors can participate in any price appreciation of the issuer’s stock by converting the bond to equity.

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