India Inc to take FCCB route in Singapore

Despite the restrictions imposed by the Reserve Bank of India (RBI) on overseas borrowings, India Inc is finding foreign currency convertible bonds (FCCBs) an ideal option for raising funds for their offshore acquisitions or other purchases abroad.

However, instead of the earlier Luxembourg route, Indian companies are eyeing the Singapore Exchange for collection of funds through FCCBs due to lower listing fee costs there, say investment bankers. 2007 witnessed record collections of over $7 billion through the FCCBs, compared to previous year's $4.27 billion, despite the curbs. 

Top five FCCB advisers in 2007
Investment banks	Amount advised ($ mn)
JP Morgan	1,197.50
Citigroup	1,189.20
Barclays' Capital	755.00
Standard Chartered Plc	538.70
HSBC Holdings Plc	500.00
Source: Thomson Financial

In a move to curb the rupee's appreciation, the central bank had in August 2007 asked companies to use the funds collected abroad itself for overseas spends, including for acquiring companies.

"FCCBs will continue to be an important vehicle for Indian companies to raise funds," said S Ramesh, chief operating officer of Kotak Mahindra Capital, which concluded two deals recently.

The deals are $55 million for Prime Focus (in December) and $20 million for Kinetic Engineering (in January). To take advantage of the growing appetite of Indian companies for FCCBs, Kotak Mahindra recently tied up with KBC Financial Products, Belgium's second largest bank, to bring the foreign bank's expertise in FCCB to its Indian clients.

"Traditionally Indian companies preferred Luxembourg for FCCBs. Now, Singapore is emerging as an alternative due to lower listing costs," said Stephen J Woods, KBC executive director.

Ravi Kapoor, managing director and head of equity capital markets at Citigroup Global Markets India, said Indian companies - large, medium and small - are looking at raising funds through FCCBs for their overseas expansion plans. "One trend we distinctly see is that companies are tapping FCCBs even for small amounts as well," he said.

Citigroup has advised nine companies for FCCBs last year, and was one of the top FCCB advisers during the period, according to the data from Thomson Financial.

Citigroup was ranked number two after they helped companies to collect $1,189.2 million, according to Thomson Financial. JP Morgan stood number one in the FCCB league table for advising six companies for $1197.5 million, as per the data.

"Earlier, you had 25-30 companies that had a $1 billion market cap. Now, we have at least 200 companies in the $1 billion market cap bracket," said Ramesh of Kotak. "All these companies will have overseas plans and may be looking at a FCCB issue at one point or the other," he said.

With the crash in stock prices, the conversion premium for FCCBs may have declined, but still, the companies may go for FCCBs to fund their overseas plans, said Tanushree Bagrodia, who heads KBC Financial Products' capital markets division.