D EFINITION OF 'F OREIGN C URRENCY C ONVERTIBLE B OND - FCCB':

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond 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.

I NVESTOPEDIA EXPLAINS 'F OREIGN C URRENCY C ONVERTIBLE B OND - FCCB':

These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. (Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs.

C ONVERTIBLE B ONDS : A N I NTRODUCTION :

INVESTOPEDIA STAFF
Contact | Author Bio

New players to the investing game often ask what convertible bonds are, and whether they are bonds or stocks. Essentially, they are corporate bonds that can be converted by the holder into the common stock of the issuing company. In this article, we'll cover the basics of these chameleon-like securities as well as their upsides and downsides. What Is a Convertible Bond? As the name implies, convertible bonds, or converts, give the holder the option to exchange the bond for a predetermined number of shares in the issuing company. When first issued, they act just like regular corporate bonds, albeit with a slightly lowerinterest rate. Because convertibles can be changed into stock and thus benefit from a rise in the price of the underlying stock, companies offer lower yields on convertibles. If the stock performs poorly there is no conversion and an investor is stuck with the bonds sub-par return (below what a non-convertible corporate bond would get). As always, there is a tradeoff between risk and return. (For more insight, read G E T A C Q U A I N T E D W I T H T H E B O N D P R I C E - Y I E L D D U O .) Conversion Ratio The conversion ratio (also called the conversion premium) determines how many shares can be converted from each bond. This can be expressed as a ratio or as the conversion price, and is specified in the indenture along with other provisions.

E XAMPLE :
A conversion ratio of 45:1 means one bond (with a $1,000 par value) can be exchanged for 45 shares of stock. Or it could be specified at a 50% premium, meaning that if the investor chooses to convert the shares, he or she will have to pay the price of the common stock at the time of issuance plus 50%. Basically, these are the same thing said two different ways.

This chart shows the performance of a convertible bond as the stock price rises. Notice that the price of the bond begins to rise as the stock price approaches the conversion price. At this point your convertible performs similarly to a stock option. As the stock price moves up or becomes extremely volatile, so does your bond.

It is important to remember that convertible bonds closely follow the underlying's price. The exception occurs when the share price goes down substantially. In this case, at the time of the bond's maturity, bond holders would receive no less than the par value. Forced Conversion One downside of convertible bonds is that the issuing company has the right to call the bonds. In other words, the company has the right to forcibly convert them. Forced conversion usually occurs when the price of the stock is higher than the amount it would be if the bond were redeemed, or this may occur at the bond's call date. This attribute caps the capital appreciation potential of a convertible bond. The sky is N O T the limit with converts as it is with common stock. (To learn more about callable bonds, read B O N D C A L L F E A T U R E S : D O N ' T G E T C A U G H T O F F G U A R D .)

The Numbers As we mentioned earlier, convertible bonds are rather complex securities for a few reasons. First, they have the characteristics of both bonds and stocks, confusing investors right off the bat. Then you have to weigh in the factors affecting the price of these securities; these factors are a mixture of what is happening in the interest-rate climate (which affects bond pricing) and the market for the underlying stock (which affects the price of the stock). Then theres the fact that these bonds can be called by the issuer at a certain price that insulates the issuer from any dramatic spike in share price. All of these factors are

important when pricing convertibles.

EXAMPLE

Suppose that TSJ Sports issues $10 million in three-year convertible bonds with a 5% yield and a 25% premium. This means that TSJ will have to pay $500,000 in interest annually, or a total $1.5 million over the life of the converts.

If TSJs stock was trading at $40 at the time of the convertible bonds issue, investors would have the option of converting those bonds for shares at a price of $50 ($40 x 1.25 = $50). Therefore if the stock was trading at say $55 by the bond's expiration date, that $5 difference per share is profit for the investor. However there is usually a cap on the amount the stock can appreciate through the issuers callable provision.

For instance, TSJ executives wont allow the share price to surge to $100 without calling their bonds - and capping investors' profits. Alternatively, if the stock price tanks to $25 the convert holders would still be paid the face value of the $1,000 bond at maturity. This means that while convertible bonds limit risk if the stock price plummets, they also limit exposure to upside price movement if the common stock soars.

Conclusion Getting caught up in all the details and intricacies of convertible bonds can make them appear more complex then they really are. At their most basic, convertibles provide a sort of security blanket for investors wishing to participate in the growth of a particular company theyre unsure of. By investing in converts you are limiting your downside risk at the expense of limiting your upside potential.

C ONVERTIBLE B ONDS : P ROS AND C ONS FOR C OMPANIES AND I NVESTORS

RICHARD CLOUTIER
Contact | Author Bio

There are pros and cons to the use of convertible bonds as a means of financing by corporations. One of several advantages of this delayed method of equity financing is a delayed dilution of common stock and earnings per share (EPS). Another is that the company is able to offer the bond at a lower coupon rate - less than it would have to pay on a straight bond. The rule usually is that the more valuable the conversion feature, the lower the yield that must be offered to sell the issue; the conversion feature is a sweetener. Read on to find out how corporations take advantage of convertible bonds and what this means for the investors who buy them. (For background reading, see C O N V E R T I B L E B O N D S : A N I N T R O D U C T I O N .)

Advantages of Debt Financing Regardless of how profitable the company is, convertible bondholders receive only a fixed, limited income until conversion. This is an advantage for the company because more of the operating income is available for the common stockholders. The company only has to share operating income with the newly converted shareholders if it does well. Typically, bondholders are not entitled to vote for directors; voting control is in the hands of the common stockholders. Thus, when a company is considering alternative means of financing, if the existing management group is concerned about losing voting control of the business, then selling convertible bonds will provide an advantage, although perhaps only temporarily, over financing with common stock. In addition, bond interest is a deductible expense for the issuing company, so for a company in the 30% tax bracket, the federal government in effect pays 30% of the interest charges on debt. Thus, bonds have advantages over common and preferred stock to a corporation planning to raise new capital.

What Bond Investors Should Look For

Companies with poor credit ratings often issue convertibles in order to lower the yield necessary to sell their debt securities. The investor should be aware that some financially weak companies will issue convertibles just to reduce their costs of financing, with no intention of the issue ever being converted. As a general rule, the stronger the company, the lower the preferred yield relative to its bond yield. There are also corporations with weak credit ratings that also have great potential for growth. Such companies will be able to sell convertible debt issues at a near-normal cost, not because of the quality of the bond but because of the attractiveness of the conversion feature for this "growth" stock. When money is tight and stock prices are growing, even very credit-worthy companies will issue convertible securities in an effort to reduce their cost of obtaining scarce capital. Most issuers hope that if the price of their stocks rise, the bonds will be converted to common stock at a price that is higher than the current common stock price. By this logic, the convertible bond allows the issuer to sell common stock indirectly at a price higher than the current price. From the buyer's perspective, the convertible bond is attractive because it offers the opportunity to obtain the potentially large return associated with stocks, but with the safety of a bond.

The Disadvantages of Convertible Bonds

There are some disadvantages for convertible bond issuers, too. One is that financing with convertible securities runs the risk of diluting not only the EPS of the company's common stock, but also the control of the company. If a large part of the issue is purchased by one buyer, typically an investment banker or insurance company, conversion may shift the voting control of the company away from its original owners and toward the converters. This potential is not a significant problem for large companies with millions of stockholders, but it is a very real consideration for smaller companies, or those that have just gone public. Many of the other disadvantages are similar to the disadvantages of using straight debt in general. To the corporation, convertible bonds entail significantly more risk of bankruptcy than preferred or common stocks. Furthermore, the shorter the maturity, the greater the risk. Finally, note that the use of fixed-income securities magnifies losses to the common stockholders whenever sales and earnings decline; this is the unfavorable aspect of financial leverage. The indenture provisions (restrictive covenants) on a convertible bond are generally much more stringent than they are either in a short-term credit agreement or for common or preferred stock. Hence, the company may be subject to much more disturbing and crippling restrictions under a long-term debt arrangement than would be the case if it had borrowed on a short-term basis, or if it had issued common or preferred stock. Finally, heavy use of debt will adversely affect a company's ability to finance operations in times of economic stress. As a company's fortunes deteriorate, it will experience great difficulties in raising capital. Furthermore, in such times investors are increasingly concerned with the security of their investments, and they may refuse to advance funds to the company except on the basis of well-secured loans. A company that finances with convertible debt during good times to the point where its debt/assets ratio is at the upper limits for its industry simply may not be able to get financing at all during times of stress. Thus, corporate treasurers like to maintain some "reserve borrowing capacity". This restrains their use of debt financing during normal times.

Why Companies Issue Convertible Debt

The decision to issue new equity, convertible and fixed-income securities to raise capital funds is governed by a number of factors. One is the availability of internally generated funds relative to total financing needs. Such availability, in turn, is a function of a company's profitability and dividend policy. Another key factor is the current market price of the company's stock, which determines the cost of equity financing. Further, the cost of alternative external sources of funds (i.e., interest rates) is of critical importance. The cost of borrowed funds, relative to equity funds, is significantly lowered by the deductibility of interest payments (but not of dividends) for federal income tax purposes. In addition, different investors have different risk-return tradeoff preferences. In order to appeal to the broadest possible market, corporations must offer securities that interest as many different investors as possible. Also, different types of securities are most appropriate at different points in time. Conclusion Used wisely, a policy of selling differentiated securities (including convertible bonds) to take advantage of market conditions can lower a company's overall cost of capital below what it would be if it issued only one class of debt and common stock. However, there are pros and cons to the use of convertible bonds for financing; investors should consider what the issue means from a corporate standpoint before buying in.

FCCB

FOREIGN CURRENCY CONVERTIBLE BONDS

From Wikipedia, the free encyclopedia :

Foreign Currency Convertible Bonds commonly referred to as FCCB's are a special category of bonds. FCCB's are issued in currencies different from the issuing company's domestic currency. Corporates issue FCCB's to raise money in foreign currencies. These bonds retain all features of a convertible bond making them very attractive to both the investors and the issuers. These bonds assume great importance for multi-nationals and in the current business scenario of globalisation where companies are constantly dealing in foreign currencies. FCCB's are quasi-debt instruments and tradable on the stock exchange. Investors are hedge-fund arbitrators or foreign nationals. FCCB's appear on the liabilities side of the issuing company's balance-sheet Under IFRS provisions, a company must mark-to-market the amount of its outstanding bonds The relevant provisions for FCCB accounting are International Accounting Standards: IAS 39, IAS 32 and IFRS 7.

R ELIANCE C OMMUNICATIONS TO REPAY FCCB LENDERS :

Reliance Communications Ltd.
BSE

RAISES

$1.8

BILLION

96.30

0.10 (0.10%)
Vol:2247674 shares traded

NSE

96.35

0.15 (0.16%)
Vol:7931405 shares traded

Prices|Financials|Company Info|Reports
RELATED ARTICLES

Bank of Baroda strongest banking stock: Ashwani Gujral Eurozone crisis: European banks face difficulties in raising capital Sell Bank of Baroda with a stop of about 785: Ashwani Gujral Inclined towards private banks: P Phani Sekhar, Angel Broking Buy Allahabad Bank: Mitesh Thacker

MUMBAI: Anil Ambani-owned telecom operatorReliance Communications has raised $1.18 billion ( 6125 crore) from Chinese banks to repay lenders of its overseas convertible bonds the company had issued in 2007. The company will have to repay the amount in seven years to a consortium of lenders led by Industrial andCommercial Bank of China, China Development Bankand Export Import Bank of China. Reliance Communications' overseas bondholders have the option of converting the loan into shares at 661 apiece. On Tuesday, RCOM stock rose nearly 3% to close at 88.85 on the Bombay Stock Exchange. The company has been attempting to sell stake in its telecom tower arm, Reliance Infratel, through which it is expected to redeem the bonds. There were reports that the company had reached a deal with private equity firm Blackstone, though executives involved in the talks said a final deal was at least two months away. Should Reliance Communications conclude the deal, analysts said it should repay the current debt early. Although the company said interest rate on the current borrowing is merely 5%, the weak rupee could play spoilsport on the total fund costs. "It (Reliance Infratel) has attracted many buyers, but Reliance never agrees to a reasonable price," said a person involved in a deal negotiation with the company. The best deal it was offered was worth 30,000 crore during talks with GTL Infrastructure. Analysts say Reliance Communications doesn't have sufficient cash flows as it has to pay interest on its over 30,000-crore debt prior to this borrowing, and meet operational expenses and capital expenditure to expand its 3G footprint.

Two years ago, the firm paid around 8,585 crore for 3G spectrum and ended up taking a $1.9-billion loan from China Development Bank to repay this and purchase 3G equipment. In April this year, the firm paid out about $500 million to redeem FCCBs issued in 2006. There have been talks of private equity firms looking to pick up an equity stake in Infratel but nothing has materialised yet. There are talks of elder brother Mukesh Ambani's Reliance Industries either picking up a strategic stake in Infratel or at least signing a longterm lease agreement for the company's telecom towers.

R. Com. to repay $1.8-bn FCCB via Chinese loan:

Reliance Communications (RCom), the flagship company of Anil Ambani-led Reliance Group has arranged loan for refinancing its $1.18-billion Foreign Currency Convertible Bonds (FCCBs) due on March 1, 2012 via Chinese lenders. The countrys second largest mobile company, grappling with huge debt-redemption pressure has tied-up with the Chinese financiers to lower its refinancing costs. The funds would be arranged by China Development Bank, Industrial and Commercial Bank of China, Exim Bank and others at a rate of five per cent to repay the last lot of outstanding foreign currency convertible bonds of the firm, the largest refinancing deals in the country till now. The Chinese loan would allow easy access to funds in a scenario of dollar liquidity crunch. The tenor of the loan is seven years. A shift in the strategy of Indian corporates can be seen with respect to repayment of their overseas debt obligations. More and more companies are preferring to raise funds from China as there is excess liquidity there, consequently, raising money becomes easier, said Jagannathan Thunuguntla, head equity, SMC Capital. Earlier, they would look to raise money from Europe and the US, he added. Uncertainty in the global markets has led to risk aversion among investors and hence, shortage of dollars. Most of the Indian firms had tapped the overseas funds via FCCBs in 2007. The instrument allows lenders to choose between conversion of bonds into equities incase the share price goes up or get the bonds redeemed on maturity date. Reliance Communications had raised money through FCCBs in 2007 at a conversion price of 30 per cent premium over the share price prevailing that time. However, after collapse of Lehman Brother which was followed by the global crisis of 2008-2009, its share price fell sharply from Rs 508 per share. Consequently, the firm had to bear the redemption pressure as the first option of conversion into equity was knocked off. Some experts also said that if Reliance Communications finds a buyer for its tower business the refinancing pressure on the firm can come off substantially. It raised about $6 billion for expansion and payment for bandwidth and licences for third generation services. RComs stock went up by as much as 5.6 per cent in intra-day trade, and closed higher by 2.7 per cent at Rs 88.8, as per dat available on the Bombay Stock Exchange.

Features of the Bond issue[9]: Status- Bonds constitute direct, unsubordinated obligations of the company and rank pari-passu inter se with all other existing debts and borrowings of the company as regards repayment of principal and payment of interest by the bonds issuing company. Redemption- (a) Redemption on maturity Unless previously redeemed or purchased by the company, the bonds are redeemed at par on the expiry of a pre-determined period from the date of the allotment. (b) Put Option[10]- When the Bondholder redeems the bonds after expiry of a certain period commencing from the date of allotment, he is said to exercise the Put Option. (c) Call Option[11]- When the company purchases the bonds from the bondholders at discount, par or premium in the open market or otherwise, the company is said to exercise its Call Option. Keeping in pace with the latest economic-financial trends, Indian Corporates have started issuing these convertible bonds in international markets commonly known as Foreign Currency Convertible Bonds[12]. FEMA Notification No. 120/ RB-2004 i.e. Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, defines Foreign currency convertible bonds (FCCBs) under Regulation 2(g) which reads as: Foreign Currency Convertible Bond (FCCB) means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency[13] When these bonds are issued in a currency different than the issuers domestic currency with an option to convert them in the

equity of the issuer company, such quasi- debt instruments are called foreign currency convertible bonds (FCCB). The author will elucidate another statutory definition given by the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 which will be discussed later in detail. The FCCBs are exceedingly popular with the Corporate India for raising funds that are usually utilized for debt restructuring, infrastructure development and expansion plan of the Company. Generally, the investors on account of two main reasons favour such types of bonds: Firstly, receipt of fixed payments on these bonds i.e. the principal and the interest accruing on these bonds which are payable in foreign currency and secondly that these investors can avail the benefit of converting their bonds into equity during the value appreciation of the issuer companys shares. Following are some common features of the Foreign Currency Convertible Bonds: FCCB can be secured as well as unsecured.[14] Mostly the FCCB issued by the Indian Companies are unsecured. Credit rating[15] of Bonds is not mandatory, since corporations having excellent track record mostly issue such Bonds. However, rating done by the Credit Rating Agency[16] certainly adds value to the bonds issued. Indian Companies, eligible to issue shares to persons residents outside India[17] under the Foreign Direct Investment Scheme[18] (including Sectoral Cap and Sectors where FDI is permissible) can raise foreign currency resources aboard through the issue of American Depository Receipts[19] (ADRs) or Global Depository Receipts[20] (GDRs). The bond to equity convertible option attached to the FCCBs is subject to the Reserve bank of India guidelines[21]. Such FCCBs can be converted by exercising the Call option[22] and Put option[23] to suit the structure of the Bond. FCCBs are generally listed on the national and regional stock exchanges to improve liquidity.

 Public issue[24] of FCCBs shall be only through reputed lead managers in international capital market. In case of private placement, the placement shall be with banks, or with multilateral and bilateral financial institutions, or foreign collaborators, or foreign equity holder having a minimum holding of 5% of the paid up equity capital of the issuing company. Private placement with unrecognized sources is prohibited.[25] FCCB Issue related expenses shall not exceed 4% of issue size and in case of private placement, shall not exceed 2% of the issue size.[26] FCCB issue by the Indian Companies need to conform with various regulatory requirements: Before the Foreign Currency Convertible Bonds (FCCB) hit the international markets innumerable compliances and conditions have to be adhered to by the company desiring to raise finances by facilitating the issue of FCCBs. Trying to ride the bull phase, corporate sector is leaner and meaner now, with the focus on cost control, and the restructuring of operations over the recent past adding a few crucial percentage points to operating profit margins. The inevitability of the regulatory policies provides flexibility in borrowings by the Indian Corporates, which are crucial for the overall growth of the economy, and at the same time maintains prudent limits for these total external borrowings that are acquired by scores of sources one of them being the FCCB Issue. Requirements as prescribed by the several provisions of the Company Law[27]: FCCBs are bonds issued by an Indian company or any body corporate expressed in foreign currency to non-resident investors, which fall within purview of the definition of Debentures[28], and therefore the process for issue of debentures shall be applicable to the issue of FCCBs. A. Prior intimation to be given to the Stock Exchange by the issuer company listed at the Stock Exchange, atleast 7 days before the date of Board meeting in which the FCCB issue is to be considered.[29]

B. Power to issue FCCBs vests with the Board of Directors of the issuer Company who are obligated to pass a Board resolution pertaining to the issue of FCCBs.[30] C. Convening a General Shareholders Meeting for procuring the shareholders consent with regard to the enhancement of borrowing powers of the Board,[31] acquiring authorisation for creating mortgage in case of issue of secured FCCBs[32] or obtaining shareholders approval on the further issue of the capital by way of FCCB issue, without making an offer to the existing shareholders of the company by a Special Resolution[33]. D. It is mandatory upon the companies intending to make public issue of FCCBs, to constitute a Trust Deed[34] for the bonds, to appoint a Trustee[35] for the bondholders and to create a redemption reserve account[36] respectively as the Company issues these Bonds to the foreign investors in accordance with the provisions of the Trust Deed Role of SEBI Pre-issue and Post-issue requirements & Conditions to be fulfilled by the Issuer Company: An application for listing of the Bonds has to be made to the stock exchange of the country where the FCCBs are to be issued and traded i.e. international stock exchange. In-principal approval has to be obtained from the Indian Stock exchange to list the shares issued upon conversion of bonds, when the bondholder exercises the convertibility option. Filing the Offer Document[37](Offering Circular) with Securities Exchange Board of India, Reserve Bank of India and stock exchanges prior to FCCB issue[38]. RBIs[39] Regulatory Framework: The Government of India considers the funds raised through the FCCB issue as Foreign Direct Investment (FDI).[40] The latest comprehensive RBI guidelines on FCCB are contained in the July 1st, 2008 Master Circular[41] on External Commercial Borrowings and Trade Credits that provides the Scheme and Policy to be followed by the issuers of FCCBs as the circular itself very distinctly provides that the Policy laid down for the External Commercial Borrowings[42] are likewise applicable to the issue of FCCBs.

1. The ECB Master Circular lays down that borrowing funds through FCCB issue can be accessed under two routes, viz., (i) FCCBs Issue upto US $ 500 million under the Automatic Route (ii) FCCBs Issue beyond US $ 500 million with the specific approval of the Reserve Bank i.e. under the Approval Route.[43] 2. The Circular[44] makes available the Eligibility criteria on the numerous kinds of entities & individuals for borrowing and lending during the FCCB issue under the Automatic Route. Eligibility of the Issuer: i. Indian Corporates except financial intermediaries such as banks, FIs, NBFCs. ii. NGOs engaged in micro finance activities. iii. Individuals, Non Profit making organizations and trusts are not eligible. Eligibility of the Subscriber: i. International Capital markets. ii. International banks. iii. Multilateral Financial Institutions. iv. Export credit agencies. v. Suppliers of equipment. vi. Foreign collaborator. vii. Foreign equity holder, subject to minimum holding of equity of 25% in the borrowers company for raising ECB up to USD 5 million; minimum holding of equity of 25% in the borrowers company and a debt equity ratio of not more than 4:1, for raising ECB above USD 5 million. viii Overseas organizations & individuals (lend to NGOs in micro-finance activities). 3. FCCB issue proceeds need to conform with the EndUse[45] conditions as prescribed by RBI in the abovementioned ECB Master circular: Permitted End Use:

 Investment in real-industrial sector including SMEs[46] and infrastructure sector through expansion, modernization, import of capital goods, new projects etc. Overseas Direct Investment in joint ventures/wholly owned subsidiaries. First stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Governments disinvestment programme of PSUs[47]. 25 % of the FCCB proceeds can be used for general corporate restructuring. Prohibited End Use: Investment in real estate excluding integrated townships. On-lending. Investment in capital markets. Acquisitions. As working capital. For general corporate purposes. For Repayment of Rupee Loans. Law Governing the FCCB issue through the ADR/GDR Mechanism: In the recent past, some Corporates have raised funds through issue American Depository Receipts and/or Global Depository Receipts. Under such a mechanism, the companies issue shares to the depositories who in turn issue these ADRs/GDRs to the ultimate investors functioning in the international markets. For this purpose the entities issuing the ADRs/GDRs enter into an agreement with the depository to the effect that the depository would not exercise voting rights in respect of shares held by them or they would exercise voting rights as directed by the managerial authorities of the issuer companies.[48]

It may be further noted that the Indian Companies are permitted to issue Foreign Currency Convertible Bonds and Ordinary Shares

through Global Depository Mechanism[49]. The aforesaid circular[50] further lays down that these foreign currency convertible bonds are required to be issued in accordance with the scheme viz., "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.[51]

The following diagram depicts the mechanism of FCCB issue through the depository receipts (ADRs/GDRs):[52]
Indian Company Ordi nary Shar es Domestic Depository Bank Overseas Depository Bank Depository Receipts Inv estor s F C CB

The Scheme defines Foreign Currency Convertible Bonds as "Foreign Currency Convertible Bonds" means bonds issued in accordance with this scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments.[53] The Scheme further provides the eligibility conditions for issue of Convertible Bonds or Ordinary Shares of Issuing Company[54]:

a) Obtain prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India. b) Issue ADRs/GDRs, if company is eligible to issue shares to persons resident outside India under the FDI Scheme. c) Indian listed company not eligible to raise funds from the Indian Capital Market including a company restrained from accessing the securities market by (SEBI) will not be eligible to issue ADRs/GDRs. d) Unlisted companies would require prior or simultaneous listing in the domestic market, on issuance of ADR/GDRs. e) Unlisted companies already issued ADRs/GDRs have to list in the domestic market on making profit or within three years of such issue whichever is earlier. f) GDR/ADR/FCCBs issue is likely to exceed the percentage limits under the automatic route, or implementing a project falling under approval route, issuing company required to obtain prior FIPB[55] and Ministry of Finance Approval. Current Scenario: Having discussed in length the entire procedure for the FCCB issue, the author would like to excerpt a FCCB issue deal, in progress, between the low-cost carrier SpiceJet and an American PE firm WL Ross & Co. promoted by billionaire Wilbur Ross who is known for restructuring failed companies.[56] Sluggish demand in the domestic market, current economic slowdown and mounting ATF (aviation turbine fuel) prices have led to a mammoth down turn in the aviation industry, resulting into mergers, acquisitions and borrowings by the airline companies that were running into massive losses. The low cost airline SpiceJet, currently facing turbulence due to soaring fuel prices is expected to raise funds by issuing the foreign currency convertible bonds to the ace investor Wilbur Ross, who has agreed to pump in Rs.354 Crores ($80milion) to tide over this financial crunch. The conversion price of FCCBs is pegged at Rs. 56 per share and this convertibility option may be exercised anytime till 2010. The proposed fund infusion would meet the

working capital requirements including the losses of the company thereby maintaining the carriers productivity until the crude oil prices eventually stabilize. Hence, the FCCBs have yet again proved to be an economicfinancial rescue means by propping up the budget airline especially as the markets sloth adds to its undesirable and downbeat performance. Conclusion: In view of the above, monies raised by the FCCB issues, amounting to foreign investments in India, prove to be a boon as they are affirmatively utilized for corporate development and expansion plans. In the Indian context, the FCCB route, a financial instrument operated by the non-resident investors, has provided a new way of investing in the Indian markets. However, there is a constant watch on such corporate actions as these steps are an open invitation to either Foreign Investments or what the regulatory authorities term it to be Foreign Intervention. Despite the bright prospects, the Indian stock markets have been known for severe manipulations and it is suspected that the recent boom has come in handy for several unscrupulous elements to take advantage of such market gyrations. To sum up, its the primary responsibility of the government to ensure that the Indian Corporates exploiting such avenues are duly complying with the instructions and the finances thus borrowed, are in conformity with the prescribed guidelines and any contravention are to be viewed seriously attracting penal action. -------------------------------------------------------------------------------[1] D.T Khilnani -FEMA Ready Reckoner (Vol.1, 15th edition, July 2008) [2] Foreign Exchange Management Act, 1999 came into force on the 1st day of June, 2000 thereby repealing the Foreign Exchange Regulation Act, 1973. [3] As defined in 1.2.1 (xi) of the Securities and Exchange Board of India (disclosure and investor protection) Guidelines, 2000. [4] Debenture as defined under section 2 (12) of The Companies Act, 1956 includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not.

[5] Bond is an obligation to pay a fixed sum of money, at a definite time and with a stated interest. Therefore bond is generally a long-term debt security. Blacks law Dictionary. [6] OECD Glossary of Statistical Terms (http://stats.oecd.org/glossary). [7] 128(3ed. 1991) [8] Debt securities cover all tradable securities, except those classified as equity securities. Debt securities include bonds, debentures, notes, etc., money market or negotiable debt instruments as defined by OECD Glossary of Statistical Terms (http://stats.oecd.org/glossary). [9] SEBI Capital Issue Debentures & Listing by K Sekhar (3ed. Volume 1) [10] A Put Option gives the bondholder the right but not an obligation to sell a fixed number of equity shares of a company at a specified price at any time on or before the maturity date. [11] A Call Option is a contract giving its owner the right to buy a specified number of equity shares of a company at a specified exercise price at any time on or before the fixed maturity date. [12]In US such bonds listed with SEC are called Yankee Bonds, while they are referred to as Bulldog Bonds (in U.K.) and Samurai Bonds (in Japan). [13] Foreign Exchange Management Act, 1999 defines foreign currency under section 2 (m) as foreign currency means any currency other than the Indian currency. [14] FCCBs issued by companies are either security backed FCCBs i.e which create a charge on the assets of the body corporate or unsecured depending upon the issue requirements. [15] Rating means an opinion regarding securities, expressed in the form of standard symbols or any other standardized manner, assigned by a credit rating agency and used by the issuer of such securities, to comply with the requirement specified under the Securities Board of India (Credit Rating Agencies) Regulations, 1999. [16] Credit Rating Agency means a body corporate which is engaged in, or proposes to be engaged in the business of rating of securities offered by way of public or rights issue as defined under 2(h) of the Securities Board of India (Credit Rating Agencies) Regulations, 1999.

[17] Foreign Exchange Management Act, 1999 under section 2 (w) states that a person resident outside India means a person who is not resident in India [18]"Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 [19] American Depository Receipts means a security issued by a Bank or a depository in United States of America against underlying rupee shares of a company incorporated in India. [20] Global Depository Receipts means a security issued by a bank or a depository outside India against underlying rupee shares of a company incorporated in India. [21] Reserve Bank of India has issued master circulars, regulations and guidelines which regulate the issue of FCCB by Indian players in the international corporate market [22] See supra note.5 [23] See supra note.4 [24] Public Issue means an invitation by a company to public to subscribe to the securities offered through a prospectus as defined in SEBI (Issue and Listing of Debt Securities) Regulations, 2008 [25] Schedule I- Automatic Route for Issue of Foreign Currency Convertible Bonds (FCCBs) of The Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 [26] ibid. [27] The Companies Act, 1956 [28] Section 2(12) of the Companies Act, 1956 -- Debenture includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. [29] Clause 19 (a) of the Listing Agreement [30] Section 292 of the Companies Act, 1956 [31] Section 293(1)(d) of the Companies Act, 1956 [32] Section 293(1)(a) of the Companies Act, 1956 [33] Section 81 (1 A) of the Companies Act, 1956. [34] Section 117A of the Companies Act, 1956 [35] Section 117B of the Companies Act, 1956 [36] Section 117C of the Companies Act, 1956 [37] Offer Document means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is any document inviting deposits from the public or inviting offers from public for the subscription or purchase of any shares

in, or debentures, bonds of any body corporate and includes any notice, circular and advertisements. This definition is taken from the Securities and Exchange Board of India (disclosure and investor protection) guidelines, 2000 and The Companies Act, 1956. [38] Filing of information with the RBI within 30 days from the issue date including total amount of the Bonds issued, names of the investors resident outside India and the amount repatriated to India supported by Foreign Inward Remittance Certificates as provided by Notification FEMA No. 120 i.e. The Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, under Part III - Investments in Foreign Securities other than by way of Direct Investment. [39] Reserve Bank of India. [40] International Monetary Fund (IMF) explains that foreign direct investment is the category of international investment that reflects the objective of obtaining a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the enterprise. [41] RBI/Master Circular No. /07 /2008-09 -- Master Circular on External Commercial Borrowings and Trade Credits. [42] ECB [43] Also stated in the FEMA 120- The Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. [44] See supra note.40 [45] Emphasis suppliedthe ultimate application of the funds raised by the body corporate through the FCCB issue. [46] Small and Medium enterprises. [47] Public Sector Undertakings [48] Issue of American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs) Deopsitory Agreement. [49] Global Depository Receipts Mechanism is wherein an instrument in the form of a depository receipt or certificate created by Overseas Depository bank outside India and issued to nonresident investors against the issue of ordinary shares or the foreign currency convertible bonds of the issuing company. [50] See supra note. 43

[51] Hereinafter to be referred as the Scheme [52] Guide on foreign Collaboration by Rajiv Jain, (9th ed) [53] Section 2 (b) of the Scheme. [54] Law governing the ADR/GDR Scheme. [55] Foreign Investment Promotion Board. [56] Wilbur Ross boards SpiceJet with $80m The Economic Times, Mumbai edition- July 16, 2008

ISSUE OF FCCBs FOR RAISING FUNDS BY AN INDIANCOMPANY-----continued

Pricing:

The pricing of Foreign Currency Convertible Bond issues should be made at a price not less than the higher of the following two averages:

(i)

The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;

(ii)

The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. The relevant date means the date thirty days prior to the date on which the meeting of the general body of shareholders is held, in terms of section 81 (IA) of the Companies Act, 1956, to consider the proposed issue.

Maximum Amount allowed to be raised and Maturity Period:

An eligible company can raise funds upto USD 500 million in a single financial year. Where the amount of fund to be raised is to be USD 20 million or less the minimum maturity period should be not less than three years. If the amount to be raised is more than USD 20 million and upto 500 million the minimum maturity period should not be less than 5 years. FCCBs upto USD 20 million can also carry a call and put option provided the option shall not be exercised until minimum maturity period of 3 yeas has expired.

End Use Permitted:

The funds raised through FCCBs can be used only for the following purposes

1. Investment in the real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. 2. Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad. 3. The first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Governments disinvestment programme of PSU shares. 4. For refinancing of the existing FCCB subject to the condition that the fresh FCCB is raised at a lower all-in-cost and the outstanding maturity of the original FCCB is maintained.

However a company is not allowed to use the funds in following activities

1. for on-lending or investment in capital market or acquiring a company (or a part thereof) in India except banks and financial institutions eligible under approval route 2. utilisation of funds in real estate sector 3. for working capital, general corporate purpose and repayment of existing Rupee loans.

All-in-cost ceilings:

All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The current ceilings are as below: Average Period Maturity All-in-cost Ceilings over 6 month LIBOR* Three years and up to five years More years than five 200 basis points

350 basis points

* for the respective currency of borrowing or applicable benchmark.

Some other important points :

1. FCCBs issued have to be in confirmations with the FDI Policy including Sectoral caps and sectors permitted. 2. FCCBs issue can not be utilised for the purpose of investment in stock market. 3. Funds raised are required to be parked abroad unless they are de facto required by the company. For the time being the funds can be invested in short term liquid assets expressly specified by the RBI. 4. Issue of FCCB with attached warrant is not permitted. 5. There is no maximum limit on the number or value / size of the FCCB instrument. 6. Banks, FIs, NBFCs are not permitted to issue letter of comfort / guarantee / letter of undertaking etc for the FCCB issue. 7. Issuing entity is required to furnish a report to the RBI within 30 days from the date of issue giving the details and documents as under: a) Total amount for which FCCBs have been issued,

b) Names of the investors resident outside India and number of FCCBs issued to each of them.
c) The amount repatriated to India through normal banking channels and/or the amount received by debit to NRE/FCNR accounts in India of the investors (duly supported by bank certificate). 8. There is no requirement in regard to security underlying FCCB and it has been left to the discretion of the issuing company to decide the type of such security subject to any other extant rules and regulations. Unlisted companies, which have not yet accessed the Global Depositary Receipt / Foreign Currency Convertible Bond route for raising capital in the international market would require prior or simultaneous listing in the domestic market, while seeking to issue Foreign Currency Convertible Bonds in accordance with Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.

All about FCCB Foreign Currency Convertible Bond

by BankBazaar.com Desk on 8, October, 2009 0 | A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different than the issuers domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. It gives two options. One is, to get the regular interest and principal and the other is to convert the bond in to equities. It is a hybrid between bond and stock.

A newcomer to the business and finance sector can get numbed with the plethora of types of stocks, bonds, funds etc. along with its associated terms. An average individual has to understand a mountain of information to understand to make sound financial decisions. In a bid to make things simpler, lets take a look at a bond which we most probably would run into while going through financial information Foreign Currency Convertible Bond (FCCB). What is a Foreign Currency Convertible Bond (FCCB)? A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different than the issuers domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. It gives two options. One is, to get the regular interest and principal and the other is to convert the bond in to equities. It is a hybrid between bond and stock. How does it help companies? Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies because:

It may appear to be more stable and predictable than their domestic currency Gives issuers the ability to access investment capital available in foreign markets Companies can use the process to break into foreign markets The bond acts like both a debt and equity instrument. Like bonds it makes regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock

It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component Conversion of bonds into stocks takes place at a premium price to market price. Conversion price is fixed when the bond is issued. So, lower dilution of the company stocks How does it benefit an investor? Its not just companies who are benefited with FCCB. Investors too enjoy its benefits. Here are some:

Safety of guaranteed payments on the bond Can take advantage of any large price appreciation in the companys stock Redeemable at maturity if not converted Easily marketable as investors enjoys option of conversion in to equity if resulting to capital appreciation Are there any disadvantages to the investors and companies? Yes. Like any financial instruments, FCCBs also have there disadvantages. Some of these are:

Exchange risk is more in FCCBs as interest on bond would be payable in foreign currency. Thus companies with low debt equity ratios, large forex earnings potential only opted for FCCBs FCCBs means creation of more debt and a FOREX outgo in terms of interest which is in foreign exchange In case of convertible bond the interest rate is low (around 3 to 4%) but there is exchange risk on interest as well as principal if the bonds are not converted in to equity If the stock price plummets, investors will not go for conversion but redemption. So, companies have to refinance to fulfil the redemption promise which can hit earnings It will remain as debt in the balance sheet until conversion

How is taxation done on FCCBs? Taxation is computed in the following way:

Until the conversion option is exercised, all the interest payments on the bonds, is subject to deduction of tax at source at the rate of 10% Tax exercised on dividend on the converted portion of the bond is subject to deduction of tax at source at the rate of 10% If Foreign Currency Convertible Bonds ( FCCB ) is converted into shares it will not give rise to any capital gains liable to income-tax in India If Foreign Currency Convertible Bonds (FCCB) is transferred by a non-resident investor to another non-resident investor it shall not give rise to any capital gains liable to tax in India.

S TATE B ANK OF I NDIA TO GAIN R S 242 FROM W OCKHARDT ' S FCCB DEAL

CRORE

Story Comments

Read more on Sun Pharma|State Bank Of India|ICICI bank|Bank of India

Sun Pharmaceutical Industries Ltd.

BSE

500.40

2.25 (0.45%)
Vol:3471 shares traded

NSE

500.10

0.15 (0.03%)
Vol:24816 shares traded

Prices|Financials|Company Info|Reports
RELATED ARTICLES

State Bank of India ends visa JV for merchant acquiring business Capital infusion in public sector banks to be finalised soon ICICI Bank to join Facebook bandwagon SBI may classify Kingfisher Airlines account as NPA, cut further funding till CDR completed Metal, realty, banking indices gain over 3% on firm global cues

MUMBAI: State Bank of India grabbed itself a new year gift from the troubled drug-maker Wockhardt that could lead to a near-term gain of as much as Rs 242 crore in a case relating to the company defaulting on foreign currency convertible bonds (FCCB), said a person familiar with the matter. State Bank, which had agreed to convert half of its $40 million bond holdings into equity shares in 2015 and redeem the remaining at a premium in 2018, has now enforced a clause in the settlement that says it should get the same treatment as other bondholders. After Wockhardt defaulted on its FCCB payments, bondholders, such as a fund QVT and Sun Pharma, dragged the company to court. The company lost the two-year-long battle as the court directed it to pay the bondholders. The company has now decided to pay SBI the same way as other bondholders despite the bank having agreed to wait for payments. Workhardt did not respond to an email sent by ET regarding this development. Hundreds of crores in soured derivatives deals forced Wockhardt to default on its payments when they came up for repayments in 2009. Its plans to sell assets and repay some lenders also backfired with courts blocking such sales without paying the bondholders.

After many attempts, the company is slowly making headway in returning to normal operations. It has also applied to leave the so-called corporate debt restructuring (CDR) programme. The exit will help it focus on business instead of dealing with multiple lenders. It has appointed ICICI Bank to work out the recompense amount -the settlement amount it would pay lenders to get out of the CDR programme.

I NDIA I NC

Story Comments (1)

FINDS DOLLAR FUND ING GROW S SCARCE , EXPENSIVE

Read more on Yen Capital Advisors|Vijay Mallya|United Spirits|Sunil Shirole|Standard Chartered Bank|SMC Global Securities|Santosh Singhi|Rupee|Kingfisher Airlines|JSW Steel|India Inc|Hindustan Petroleum Corp Ltd|Funding|Era Group|dollar|Debt Financing|DBS Bank|Amtek India

United Spirits Ltd.

BSE

526.90

1.70 (0.32%)
Vol:8908 shares traded

NSE

526.95

2.45 (0.47%)
Vol:57107 shares traded

Prices|Financials|Company Info|Reports
RELATED ARTICLES

Stock roundup: Shriram Transport, Onelife Capital Advisor and IDFC Hero MotoCorp to unveil first petrol-electric hybrid scooter Oil companies like IOC, Bharat Petroleum Corporation may hike petrol prices by Rs 2.10 - 2.13 per l...

Hong Kong, China shares firmer, Chinese banks strong Nifty 50 companies including Infosys Technologies and Bharat Petroleum reversed profit drop due to ...

MUMBAI: Indian companies can no longer count ondollar credit as a cheap funding alternative to expensive domestic borrowings. While surging interest rates at home had prompted many Indian companies to look offshore to raise dollars this year, risk-aversion among banks has pushed up the cost of offshore debt and made it scarce for all but the highest-rated borrowers. As a result, small or mid-sized firms with repayments looming face the risk of default, while those in urgent need of cash may have little choice but expensiverupee debt, adding to their interest burden. "Prices are higher, credit spreads are higher, so it is tougher to get dollars. Banks have an issue about liquidity," said Harinder Singh, head of global markets for South Asia at UK-based Standard Chartered Bank. The Still, squeeze Singh is most acute "everyone for is firms in looking to refinance to existing raise debt. dollars."

said,

discussions

While globally companies are finding it harder to raise funds as investors sit on the sidelines and banks are in capital-preservation mode due to the European debt crisis, the dollar funding squeeze is especially painful for Indian companies given the high cost of local funding. An Indian bluechip now pays about 9-11 percent interest on a dollar loan, still better than the 12-14 percent it would cost to borrow in rupees, but far more expensive than the 7-8 percent it would have cost a month or so ago. "We are not in the market for long-term loans, but we are finding it difficult to raise even short-term funds for working capital," said M.V.S Seshagiri Rao, joint managing director of JSW Steel, India's No.3 steel producer. Rao said that while the cost advantage of dollar borrowing has waned significantly, the company still prefers dollar loans as a hedge against its imports. In October, state-run Hindustan Petroleum Corp Ltd raised $465 million for plant modernisation and paid 165 basis points over LIBOR, said a senior executive who did not wish to be identified. Rates for a similar credit have risen to about 400 basis points over LIBOR since then, bankers said. FEW OPTIONS Indian companies, which have refrained from big investments in recent quarters as global and local economic conditions weakened, have relied on offshore sources to raise funds this year due to a poor stock market -- the benchmark is down 23 percent -- and high interest rates at home. India's main policy interest rate, at 8.5 percent, is at its highest since July 2008 after the central bank raised rates 13 times between March 2010 and this past October in a tightening cycle that is widely seen to be ending. Slowing economic growth and high interest rates, meanwhile, are squeezing profits at Indian companies, making them less attractive to lenders. Capital-hungry Indian firms are hoping the market picks up. "Today, since the situation is tight, we are not even approaching banks," said H.S. Bharana, chairman of construction firm Era Group, which has been looking to convert $100 million of rupee loans into cheaper U.S. dollar loans. Auto parts maker Amtek India, which plans to raise $250 million, is waiting for markets to become

more

favorable.

"We are watching overseas markets and believe that in the next six months we should borrow in dollars," saidSantosh Singhi, Amtek's chief financial officer. Liquor maker United Spirits, headed by flamboyant tycoon Vijay Mallya, who also controls ailing Kingfisher Airlines, recently said it had hired StanChart, DBS Bank and Rabobank to raise up to $225 million in offshore convertible bonds in early 2012 to cut high-cost debt. DOUBLE WHAMMY Firms in India have raised $30 billion through external commercial borrowings in 2011, about a third higher than a year earlier, RBI data showed. Many of those borrowers are exposed to currency losses after the rupee lost nearly 20 percent of its value from a July peak to a record low earlier this month. Brokerage SMC Global Securities has estimated provisions for mark-to-market losses on foreign exchange requirement for Indian firms at 270 billion rupees ($5 billion), resulting in "disastrous December quarterly results." "Smaller companies will not get dollar funding and are in danger of default," said Sunil Shirole, chief executive at Mumbai-based boutique investment bank Yen Capital Advisors. "They may be able to access the domestic debt market, but that will be very costly," he said. Shirole is working on two or three fundraising proposals including one for an energy company and another for an IT-services firm, which is looking to raise dollars to meet repayment obligations of its convertible bonds. India's central bank in its Financial Stability Report last week noted that foreign sources of lending are declining due to a rise in risk aversion and "tensions arising from Europe." Although rates have moved up, HPCL may still look for overseas funding in the near future as it enjoyed a 200 basis points discount to local borrowing, the executive said. "The market is tough, but good bluechip names can still borrow in dollars. There are deals in the pipeline for the right kind of borrowers," Standard Chartered's Singh said.

U NITED S PIRITS

TO HOLD EGM SEEKING SHAREHOLDER APPROVAL FOR FCCB ISSUE

BANGALORE: Vijay Mallya-promoted liquor company United Spirits said an extraordinary general meeting of the shareholders will be held on Jan 20, 2012 to approve a fund-raising plan of $225 million through the issue of foreign currency convertible bonds (FCCB). FCCBs are funds raised in foreign currency which have characteristics of debt and equity instruments. They carry coupon rate payments while giving theFCCB holder an option to convert into equity. The Bangalore-based company said it has proposed an issue of FCCBs to garner long term resources early next year. This was primarily to retire foreign currency debts through investments in wholly-owned overseas subsidiaries. It said this would consequently improve profits and earnings per share. The company additionly said it would help meet its fund requirements for expansion and capital expenditure. United Spirits said its board of directors had approved an issue of FCCBs worth $175 million and a green shoe option of upto further $50 million, in a stock exchange filing on December 21. Standard Chartered Bank, Rabo Bank and DBS Bank have been appointed as advisors to the issue. United Spirits' stock closed at Rs 547.20 on the BSE, 4.81% lower on Wednesday trading.

EXAMPLE A conversion ratio of 45:1 means one bond (with a $1,000 par value) can be exchanged for 45 shares of stock. Or it could be specified at a 50% premium, meaning that if the investor chooses to convert the shares, he or she will have to pay the price of the common stock at the time of issuance plus 50%. Basically, these are the same thing said two different ways.