Firms get six months to revise conversion price of FCCBs

The Union finance ministry today amended the rules for foreign currency convertible bonds (FCCBs) to allow issuers to revise their conversion price within six months.

The move is aimed at reducing price uncertainty in a volatile equity market. The decision will help issuers adjust the conversion price of their bonds to a two-week average of the stock.

Bonds issued prior to November 27, 2008, were priced at either six months or two weeks average of the share price, whichever was higher. However, the pricing of bonds issued later are based on the two-week average, which brought the issue price closer to their market price. Now, the government has provided a window to rationalise the issue prices of all FCCBs.

The ministry said revision of the conversion prices should be set within the limit of the foreign direct investment (FDI) approval. Also, the issuing company should take approval from its board of directors, shareholders and the Reserve Bank of India. Moreover, issuers should enter into a fresh agreement with FCCB holders to revise the conversion price, said the ministry.

Corporate houses reacted positively. “Because of the volatility in the market, the conversion of bonds nearing maturity will face difficulty. Thus, it will continue as debt on the books of companies. Now, the government has provided a window to rationalise the conversion price, that will help the companies to adjust the prices to get it converted into equity,” said D D Rathi, director of Grasim.