FCCB issues seen facing conversion problem

Since stock prices of many of the issuers of FCCBs are far below their conversion price, the transition of these instruments into equity would be difficult at the time of maturity.
As per an estimate, FCCBs worth about Rs 31,500 crore, issued during the 2006-08 bull run, are coming up for redemption by March, 2013.

“During the period from 2005 to 2008, large amounts were raised through FCCBs by many India companies with elevated conversion premia. Most of them are nearing maturity by March, 2013. Estimates show that a very large portion of these FCCBs may not get converted into equity,” RBI said in its Financial Stability Report June, 2011.

But many of these companies are trading at a discount of more than 50 per cent to their January, 2008 prices, it said.

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