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Capital Markets

India Inc’s convertible worries

Indian companies have been the largest issuers of foreign currency convertible bonds in Asia. But there could be trouble ahead.

By Kautilya Shastri

In the first week of May, India Cements raised $75 million by issuing foreign currency convertible bonds (FCCBs) that can be converted into equity at Rs305.57 per share, a premium of 30% over the closing price of Rs235.05 on the National Stock Exchange in Mumbai (NSE). The issue was oversubscribed within a few hours. A fortnight later, India Cements’ share price was down at Rs131, one of the many victims of the brutal sell-off in emerging-market equity in the middle of May. The gap between the closing market price on 22 May and the conversion price was 133%.

Spot of bother

Investment bankers in Mumbai are now worried that many of the other convertible bond issues in the pipeline could run into trouble in the coming weeks because of the sudden drop in Indian equity prices. There were early signs of trouble well before the share price fall. This March, Jet Airways had postponed a $850 million issue of convertible bonds and global depository receipts to May because of tough market conditions.

Pharmaceuticals company Ranbaxy Laboratories too had run into a spot of bother during its $440 million FCCB issue in February. The issue went through, but sources say its aggressive pricing (with a 60% premium) put off investors and part of the issue had to be picked up by the investment banks running the book.

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