Foreign Currency Convertible Bonds
Foreign Currency Convertible Bonds (FCCBs) are possible to issue and trade, regulated by bodies like the RBI and SEBI in India, but they’re used by larger, established companies, involve significant risks (currency/stock price), and have strict rules for end-use and maturity, making them a specialized, regulated tool for capital raising rather than a widespread common practice for all companies.
Key Points on Current Viability
Regulated but Active
The RBI and SEBI govern FCCBs, and companies, especially in sectors like IT, pharma, and manufacturing, still use them for global expansion.
Automatic Route Available
Indian companies can raise FCCBs up to a certain limit (e.g., $750 million) via the Automatic route, requiring no prior RBI approval.
Strict Guidelines
Rules on minimum maturity (often 5 years) and end-use of proceeds are enforced, limiting their appeal for certain uses like real estate or capital markets.
In essence, FCCBs still exist as a financial instrument, but only viable for financially strong companies that can manage substantial currency exposure and benefit from lower interest rates in foreign markets, while adhering to strict regulatory frameworks.
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