May 23, 2011 Mumbai

FCCB redemption woes looming over India Inc: CRISIL Research

Rs 220-240 billion worth of FCCBs unlikely to get converted to equity shares Foreign currency convertible bonds (FCCBs) worth around Rs 315 billion, issued by Indian corporates, are nearing their maturities by March 2013. Of these, FCCBs worth Rs 220-240 billion may not get converted into equity shares, as the current stock prices of issuing companies are significantly below their conversion prices. Companies have the option to either redeem FCCBs or reset their conversion price downwards to make conversion attractive. An analysis by CRISIL Research indicates that bonds worth Rs 200-220 billion could be either redeemed or see a downward revision in their conversion price, based on the analysis of the capital structure, promoter holding, parent company support, profitability and cash flows. Refinancing FCCBs with fresh debt will increase the interest burden of companies as most of the FCCBs carry very low or zero coupon rate. Companies that revise their conversion price downwards could witness a sharp dilution in their equity, which will lead to further decline in their share prices. On the other hand, companies with outstanding FCCBs worth Rs 15-20 billion, which have a strained balance sheet with a net gearing of more than 2 times, weak financial performance and low promoter holding, will find it tough to meet their repayment obligations. Due to the weak financial risk profile most of these companies will find it difficult to refinance. Further, given the low promoter holding, any sharp downward reset in conversion price will dilute the promoter holding further, pointed out Prasad Koparkar, Head - Industry & Customised Research, CRISIL Research. A large number of FCCBs were issued during 2006 to 2008 period when the stock markets were buoyant and the conversion prices were set at a steep premium to the then prevailing prices. Although the stock markets have largely recovered, after the decline seen post the global financial crisis in 2008, the share prices of many of these companies with outstanding FCCBs have continued to remain depressed. The Nifty is now only about 10 per cent below its highs in January 2008. But many of these companies, accounting for more than half of the outstanding FCCBs, are trading at a discount of more than 50 per cent to their January 2008 prices. explained Koparkar.

May 23, 2011

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Media Contacts Mitu Samar Head, Market Development & Communications CRISIL Limited Tel: +91-22- 3342 1838 Mobile: +91- 98200 61934 Fax: +91-22- 3342 3001 E-mail: msamar@crisil.com Tanuja Abhinandan Market Development & Communications CRISIL Limited Tel:+91-22- 3342 1818 Mobile: +91- 98192 48980 Fax: +91-22- 3342 3001 E-mail: tabhinandan@crisil.com About CRISIL Limited

Analytical Contact Prasad Koparkar Head, Industry & Customised Research CRISIL Research Tel: +91-22- 3342 3137 E-mail: pkoparkar@crisil.com

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May 23, 2011

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