Stocks wilt, FCCB conversion blues for firms

With the stock market having come off sharply, companies, which raised funds through foreign currency convertible bonds (FCCBs) in 2005 and 2006, suddenly find that their current stock price is way below the conversion price or the price at which the bonds can be converted into equity. In some instances, the prevailing market price is less than half the conversion price.

While in most cases, there is considerable time ""-at least three to four years, during which these bonds can be converted "" it remains to be seen whether the markets will rally hard enough for those prices to be reached once again.

What is more worrying is that several of these companies have not made adequate provisions for the debt they have raised. In other words, they have not taken care to set aside funds to repay the bonds with interest in the event that the conversion does not take place. 

WITHERING HEIGHTS
Company	Amount	YTM(%)	Conversion Price (Rs)	Current Price(Rs)
Adlabs Films	84 mn euro	4	543.42	395
GHCL	$80.5 mn	1.00	197.27	154
Hikal	$12 mn	6.25	745.00	375
India Cements	$75 mn	7.95	305.57	154
Punj Lloyd	$125 mn	4.65	273.00	154
Ranbaxy	$440 mn	4.80	716.32	345
Sakthi	$20 mn	8.00	276.77	102
Sical	$75 mn	6.32	563.55	184
Shringar	$20 mn	6.5/7.5	90	51
Tata Motors	$100 mn	4.5	1001.39	681
Vardhman Textiles	$60 mn	6	423.25	200

A study undertaken by domestic brokerage, Anand Rathi Securities, shows that out of a sample of 78 companies, less than 20 were "in the money".

The current share price was higher than the conversion price only in the case of 20 companies. For some companies, a part conversion has taken place, meaning some investors have converted the bonds into equity. However, the amounts that have not been converted are larger.

Market watchers point out that the earlier price levels, which were prevailing when the bonds were issued, were based on certain earnings expectations. With earnings expectations for corporate India being scaled down, it could take a while before share prices touch their earlier peaks.