$4.7-bn FCCBs await maturity as rupee hits all-time low

Debt burden of 47 companies with outstanding bonds set to shoot up

The rupee’s fall is likely to put company promoters who raised money through foreign currency convertible bonds (FCCBs) in a spot.

According to Bloomberg data, there are 47 companies with outstanding FCCBs worth $4.7 billion. Since May, the rupee has fallen 8.04 per cent, making it the worst-performing currency in Asia.

Every drop in the rupee adds to the debt burden of these companies.

FCCBs of Brushman India and Karuturi Global are due for maturity on June 13 and October 19, respectively.

Prateek Agrawal, chief information officer, ASK Investment Managers, said the rupee’s depreciation would add to the worries of those foreign debt-holding companies that were already weighed down by their leverage. “These companies tend to belong to a leveraged part of the market which has nothing going for it…. The depreciation in the rupee will further hit these companies, unless they have hedged it,” he said.

Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance, said companies that had hedged their exposure would be hit, too. “There will be a negative impact of the depreciating rupee on these companies… Many of these companies have debt that is only partly hedged…. In any case, the cost of rolling hedges will also go up,” he said, alluding to the increased costs of continuing to hedge exposure.

FCCBs raise money through issuing debentures denominated in a currency such as the dollar. Lenders can convert these bonds into shares at a set price. If the stock is trading above that price during the time of conversion, institutions convert it for a profit. If the stock is trading below that price, companies have to repay the borrowed amount. This amount increases in value if the rupee depreciates, as the repayment has to be in dollars, at the prevailing exchange rate.

FCCBs of a dozen companies are set to mature next year. For 10 companies, these would mature in 2015, for six in 2016 and for the remaining, FCCBs would mature in 2017-19. The largest FCCB dues are of Tata Steel — $546.94 million due for maturity in November 2014, according to Bloomberg data. Sterlite Industries has $500-million FCCBs due in October 2014, while Sesa Goa has $216.8-million FCCBs, also due in October.

The impact of currency depreciation is not restricted to promoters who issued FCCBs. “Any company with foreign currency debt will be negatively impacted,” said Srivastava.