FOREIGN CURRENCY CONVERTIBLE BOND (FCCB):
A Foreign Currency Convertible Bond (FCCB) is a quasi debt instrument which is issued by any corporate entity, international agency or sovereign state to the investors all over the world. They are denominated in any freely convertible foreign currency. Euro Convertible Bonds are usually issued as unsecured obligation of the borrowers. FCCBs represent equity linked debt security which can be converted into shares or into depository receipts. The investors of FCCBs has the option to convert it into equity normally in accordance with pre-determined formula and sometimes also at a pre-determined exchange rate. The investor also has the option to retain the bond. The FCCBs by virtue of convertibility offers to issuer a privilege of lower interest cost than that of similar non convertibledebt instrument. By issuing these bonds, a company can also avoid any dilution in earnings per share that a further issue of equity might cause whereas such a security still can be traded on the basis of underlying equity value. The agreement providing for the issuance of FCCBs normally carry less restrictive covenants as they relate to the issuer. Further, FCCBs can be marketed conveniently and the issuer company can expect that the number of its shares will not increase until investors see improved earnings and prices for its common stock. Like GDRs, FCCBs are also freely tradeable and the issuer has no control over the transfer mechanism and cannot be even aware of ultimate beneficiary. The Finance Ministry vide Notification dated 20.6.1994 stated that w.e.f. this date FCCBs will be considered an approved instrument of accessing external commercial borrowings. The terms and conditions normally applicable to commercial borrowing would be binding on convertible bonds. This would include restrictions on end-use, import of capital goods and minimum maturity for bonds. Priority for accessibility to this facility would be given to firms with good forex earnings record or potential.