FCCB holders seeking early conversion as stocks zoom

With stock prices soaring, investors in foreign currency convertible bonds (FCCBs) are opting for conversion of these bonds into equities earlier than their conversion dates.

FCCBs are issued in a currency other than the issuer’s domestic currency. In other words, the money raised by the issuing company is in a foreign currency.

“The current stock price is well above conversion price. So it makes sense for the investors to convert bonds and get equity and sell that equity at a higher price to book profit,” said Prashant Sawant, an analyst with London-based KNG Securities LLP.

Mahindra & Mahindra (M&M) on Friday issued a notice for early redemption of its outstanding FCCBs of $141.20 million and set the last date for conversion of FCCBs into shares or global depository receipts at October 29. The balance outstanding FCCBs, if any, after this date, will be redeemed on November 8.

The company had issued FCCBs worth $200 million on April 13, 2006, with the bonds having a face value of $100,000 each. The bonds carried a zero coupon and were to be redeemed with a premium of 28.03% on April 14, 2011, if not converted earlier.

The conversion price for the FCCBs was Rs461.02 per share at a fixed exchange rate of Rs44.42 per US dollar.

As per the notice, the company has the right to call the bond after two years of issue if the share price is greater than 120% of the conversion price for a continuous period of 30 trading days.

In fact, the stock, which closed Friday at Rs705.80 per share, has been trading consistently higher than this mark for the past 12 weeks.

Earlier this fiscal, Adani Enterprises had announced that its FCCB investors would opt for early redemption.

After the conversion, the company’s paid-up equity share capital increased to Rs53.70 crore from Rs49.80 crore earlier.

Experts see more such early conversions of FCCBs in the time to come.
“FCCB holders have the right to demand shares whenever they want to. Many stocks have appreciated above the FCCB conversion price. We may see more of early conversions,” said Lalit Thakkar, managing director (institution), Angel Broking.