Foreign currency convertible bonds (FCCBs) are a special category of
bonds. FCCBs are issued in currencies different from the issuing company's domestic currency. Corporates issue FCCBs to raise money in foreign currencies. These bonds retain all features of a
convertible bond
In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock ...
, making them very attractive to both the investors and the issuers.
These bonds assume great importance for
multinational corporation
A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...
s and in the current business scenario of
globalisation
Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
, where companies are constantly dealing in foreign currencies.
FCCBs are quasi-debt instruments and tradable on the
stock exchange
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for t ...
. Investors are
hedge
A hedge or hedgerow is a line of closely spaced shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate a road from adjoi ...
-fund arbitrators or foreign nationals.
FCCBs appear on the liabilities side of the issuing company's
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
.
Under IFRS provisions, a company must
mark-to-market
Mark-to-market (MTM or M2M) or fair value accounting is accounting for the " fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair ...
the amount of its outstanding bonds.
The relevant provisions for FCCB accounting are
International Accounting Standards: IAS 39, IAS 32 and IFRS 7.
FCCB are issued by a company which can be redeemed either at maturity or at a price assured by the issuer. In case the company fails to reach the assured price, bond issuer is to get it redeemed. The price and the yield on the bond moves on the opposite direction. The higher the yield, lower is the price.
Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specified period. thus a holder of FCCB has the option of either converting it into equity share at a predetermined price or exchange rate, or retaining the bonds.
See also
*
American depositary receipt
An American depositary receipt (ADR, and sometimes spelled ''depository'') is a negotiable security that represents securities of a foreign company and allows that company's shares to trade in the U.S. financial markets.
Shares of many non-U.S ...
*
Global Depository Receipts
References
{{Reflist
External links
* Times of India http://timesofindia.indiatimes.com/business/india-business/FCCB-repayments-may-test-Indian-cos-in-2011/articleshow/7356735.cms retrieved on January 31, 2011
* Institute of Chartered Accountants of India http://www.icai.org/resource_file/10351703-708.pdf retrieved on January 31, 2011