Prajna Capital - An Investment Guide

Companies are rushing to buy back Foreign Currency Convertible Bonds (FCCBs) as the RBI’s deadline of March 31 draws closer. Firms such as Mahindra & Mahindra ($11 million), Uflex ($45 mn), Moser Baer ($4 mn) have announced FCCB buybacks in the past few days while others such as GV Films, Nahar Industrial, Everest Kanto have said they are considering bond repurchases. An FCCB is a convertible bond that is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. Around 156 companies have issued FCCBs between 2006 and 2008 raising close to $15 billion, according to Reliance Money. According to an investment banker, "now many of these bonds are trading at steep 50% discounts. So, if a seller is available then you can buy FCCB bonds worth $10 million for only $5 million”. After buying back FCCBs worth $4 million in late January, auto ...