FCCBs offer opportunities for capital appreciation: BNP Paribas

At a time when stocks of most companies are facing tremendous downward pressures, foreign currency convertible bonds or FCCBs may be an effective alternate for the investor community, says BNP Paribas. According to its latest India strategy report, FCCBs are likely to offer capital appreciation opportunities along with principal protection.

FCCBs, as the name suggests, are a type of convertible bonds issued by a company in a foreign currency and comprise of a mix of debt and equity. An FCCB holder receives regular coupon payments and also has the option of converting the bonds into equity shares.

"Some foreign currency convertible bonds (FCCBs) are pricing in significant financial distress. We believe these FCCBs may offer good capital appreciation opportunities along with principal protection," said Manishi Raychaudhuri and Gautam  Mehta of BNP Paribas, in a report released on Monday.

As risk aversion wanes, we believe FCCBs may no longer price a 'bankruptcy' or significant principal haircuts, providing significant capital appreciation opportunities for investors, they added.

According to BNP Paribas, Reliance Communication, Suzlon Energy, JP Associates, Videocon Industries, Everest Canto, Rolta, Great Offshore and Shiv Vani are "safe" FCCBs trading at high yield to maturity.