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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Instruments, Laws and Procedures

A listed Indian company issues Foreign Currency Convertible Bonds (FCCBs) to investors abroad. Which description best captures the nature of an FCCB?

An FCCB is a foreign currency denominated bond issued by an Indian company to non-resident investors, carrying an option to convert into the issuer's equity shares or depository receipts, or to be redeemed at maturity. It combines debt features with an equity conversion right.

  1. AA rupee-denominated bond issued only to resident Indian investors, convertible into preference shares
  2. BA foreign currency denominated bond issued by an Indian company to non-residents that can be converted into the issuer's shares or depository receiptsCorrect
  3. CA bond issued by a foreign company in India which must be repaid in rupees
  4. DA bond that carries no right of conversion and is repayable only in foreign currency

Explanation

An FCCB is a debt instrument issued by an Indian company in foreign currency to non-resident investors. The holder has the option to convert it into the issuer's equity shares or depository receipts, or to redeem it at maturity. The rupee-denominated resident option confuses it with domestic convertible debentures.

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