Role of FCCBs in Indian Market Scenario

Abstract

Efficient capital markets are a critical component for any developed economy and Indian capital markets today are amongst the best regulated markets wherein the regulatory framework has kept pace with the significant growth in the securities markets. The story of Indian capital market reveals an efficient trading and settlement infrastructure, high levels of disclosure and fostering an environment of innovation. In this back drop it is seen that a new trend of corporate financing is gaining ground. The sale of Foreign Currency Convertible Bonds by domestic companies and banks has surged over the last couple of years. Thus, this article in the first part seeks to examine some fundamental concepts related to Foreign Currency Convertible Bonds, viz, its nature, regulatory mechanism, tax treatment, advantages and disadvantages. The second part analyses whether Foreign Currency Convertible Bonds can be considered as a 'Golden instrument' for raising funds in all market scenario wherein it is concluded that Foreign Currency Convertible Bonds can be advantageous only in a booming market and cannot be the buzzword in a bearish market, which the Indian markets did experience a little while back. In a bearish market, listed companies may resort to Qualified Institutional Placements that have been introduced by SEBI vide guidelines dated May 8, 2006. Lastly, the article also examines the concerns arising out of sudden increase in access to foreign currency convertible bonds by Indian companies. In this regard it is concluded that Press Note released by the Finance Ministry on November 17, 2005 relaxing the pricing guidelines is indeed a step in the right direction.