Foreign Currency Convertible Bond
Also called: FCCB · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
A Foreign Currency Convertible Bond (FCCB) is a bond that an Indian company issues abroad in a foreign currency, such as dollars. The holder can convert it into the company's equity shares. Until the holder converts, the company pays interest and must repay the principal in foreign currency. So the Indian company bears the currency risk: if the rupee falls, repayment becomes costlier.
Example
Before 2008, many Indian firms issued FCCBs expecting holders to convert them into shares. When share prices crashed in 2008, conversion was no longer attractive, so holders chose not to convert. Firms then faced a crunch in 2008-12 because they had to repay or refinance these FCCBs in foreign currency.
Don't confuse with
- Masala bond: this is issued abroad in rupees, so the foreign investor bears the currency risk. In an FCCB, the Indian issuer bears it.
Related concepts
- Corporate bond
- Debenture
- Convertible bond
- Masala bonds
- Foreign bonds
- Perpetual bond
- AT1 bonds
- Green bonds
- Sovereign green bonds
- Blue bonds