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Group 7
Sameer
Sohail
Sankar
Himanshu
Arun V M
1
Agenda
• Fundamentals
• A bitter pill?
• Story 1 : Wockhardt
• Parting thought …
2
ABC of FCCB
• Foreign Currency Convertible Bond (FCCB) - Mix
between debt and equity instruments
3
It’s different!
4
Anatomy of an FCCB…
Capital in $
Issuer of FCCBs Lender of money
FCCBs
29-Apr-2009 29-Apr-2009
raises money in dollars receives FCCBs
sets conversion price at premium (say Rs 125) can trade FCCBs if in liquidity
maturity period between 3-5 years crunch
29-Apr-2014 29-Apr-2014
no need to pay in cash makes windfall profit by selling equity at
issues equity at pre decided price (Rs 125) prevailing market prices (say Rs 200)
equity dilution
29-Apr-2014 29-Apr-2014
redeem bonds at par value redeem FCCBs at par value
huge requirement of cash principal investment comes back with
buy back from market before small returns 5
maturity if traded at discount
A Win-Win proposition ?
FCCBs
Capital in $
Gives much of the upside of investment in equity Relatively strong rupee against the greenback
If share price goes up, benefits from the capital FCCB does not require any rating, nor any covenant like
appreciation securities, cover etc
Can be raised within a month while pure debt takes longer
Debt element protects the downside
to raise
Assured of a fixed return and capital protection Low cost means of financing
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Biggies who played the FCCB game
Name Maturity Issue Size Conversi CMP (As
Period (Mn) on Price on 28
Bajaj Feb, 2011 120 USD 465 Apr 09)
18.34
Hindusthan
Moser Baer Jun, 2012 75 USD 546 65.25
Aurobindo May, 2011 150 USD 1014 218.15
Pharma
Tata Motors Mar, 2011 11760 JPY 1001 232.80
Tata Motors Jun, 2012 450 USD 961 232.80
Hind. Mar, 2011 100 USD 248 51.70
Construction
Wockhardt Sep, 2009 110 USD 486 89.85
3i Infotech 2012 100 USD 462 44.00
Bharat Forge Apr, 2010 60 USD 384 120.25
Ranbaxy Mar, 2011 440 USD 716 165.30
Reliance May, 2011 500 USD 476 207.55
communication
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Tata Chemicals Jan, 2010 150 USD 231 164.75
Current Scenario
9
A bitter Pill
10
Wockhardt’s Big Plans
• Board meeting of Q2, 2004 - Wockhardt launched its maiden FCCB
issue of US $ 100 Mn with a Greenshoe option of US $10 Mn
• 5 year, zero coupon bond with a 50 per cent premium and a yield of 5.25 per cent
compounded semi-annually
Purpose:
• To expand reach in Europe through the inorganic route –acquired two companies in
Europe and established its own sales and marketing organization in the US
• Setup of a SEZ in the Shendra Industrial Park near Aurangabad, Maharashtra, which
will house the company’s R&D and manufacturing facilities
• Targetted a big-ticket acquisition in end 2006 - early bidder for betapharm, a generic
drug firm in Germany which was later acquired by Dr Reddy’s Laboratories Limited
• Acquired 3 major companies for $453 million in the last 30 months (Ireland based
Pinewood Laboratories for $150 million, Negma Laboratories of France for $265
million and Morton Grove Pharmaceuticals of US for $38 million)
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A sob story today….
• Current market price of INR 89.85
• Debt equity ratio of 2.3:1
• Current debt of INR 3400 crores – more than 3 times market
capitalization of INR 936 crores
• Authorized share capital increased to INR 175 crores from the existing
INR 125 crores through issue of 10 crores equity capital
• ICICI, IDBI and SBI prepared to lend to the company for pre payment
• March 2006
$100 million raised in Japanese Yen (JPY
11760 million)
convertible at INR 1,001.39
maturity on February 19, 2011
repurchased 30 Zero Coupon Convertible
Notes at an average price of 54.27%
outstanding bonds reduced from JPY 11760
Mn to JPY 11460 Mn
15-Apr’09: Tata Motors share prices jumped 12.41%
to INR 283.50 on BSE after the company repurchased
and extinguished its US and Japan listed foreign
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currency convertible bonds at 50% discount
RBI’s recent guidelines
In December 2008, RBI relaxed guidelines of FCCBs to companies
by allowing premature buy-back of FCCBs through rupee resources
15
Points to ponder
Increase (from $50M to $100M) in limit of premature buy-back of
FCCBs using Indian currency
- Very less impact because of unavailability of sellers and a scarcity of funds with
Indian companies.
16
Parting thought …
~ Ogden Nash
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