In tune with the sharp decline in its share price, Tata Motors has plans to reset the conversion price of its outstanding foreign currency convertible bonds (FCCBs) that were issued to raise $990 million (approximately Rs 4,855 crore). The bonds, which have been issued in various tranches, are currently quoted at a discount of 33-47 per cent, said a Tata Motors spokesperson.
The company has not revealed how much downward revision will take place. However, banking sources said reset price would be 20-50 per cent lower than the current conversion price.
In July 2008, the car maker had raised $490 million throgh FCCBs, for which the conversion price is Rs 960.96 and the maturity comes on June 12, 2012.
According to the last annual report of the company, it has three more FCCB transactions pending, including $100 million raised in Japanese Yen in March 2006, a $300-million and another $100 million raised in April 2004.
The FCCBs issued to raise $100 million worth Yen will be convertible at Rs 1,001.39 until maturity on February 19, 2011. The $300-million issue will mature at Rs 780.40 up to March 28, 2011. Another $100 million transactions maturity will be achieved on March 28, 2009, at a conversion price of Rs 573.10, the annual report said.
With share price of Tata Motors having fallen by around 80 per cent in 2008, the market assumes that the higher conversion prices of FCCBs will increase debt burden in the books. On January 1, 2008, Tata Motors’ share price was at Rs 741.45, while it fell to Rs 159.05 on December 31, 2008. On Thursday, the share price fell 3.54 per cent and closed at Rs 151.15 on BSE.
“The price would be reset in view of the rights issue,” said the spokesperson. He added that the company has not yet taken any decision on the premature buyback of its FCCBs. Through rights issue, the company had raised Rs 4,145 crore in October 2008 to repay the bridge loan taken for the $2.3-billion acquisition of Jaguar-Land Rover.
All these adjustments are being made because of ‘reset clauses’ attached to the convertible bonds, according to which the conversion price is revised downward when the company’s share price falls below a pre-determined level. If the share price is below the conversion price, the high likelihood is that the bonds would not get converted into shares and would end up as debt on the company’s books.
The revision in prices is to ease out the debt burden on the company but it will increase the equity dilution, said Ajay Parmar, research head of Emkay.
