Falling rupee, stock markets hurting issuers of FCCBs: S&P

The slump in stock markets globally and the fall in the value of the Indian rupee against the US dollar over the past two years are hurting the 48 Indian companies that have foreign currency convertible bonds (FCCBs) maturing in the rest of 2012.

According to a Standard & Poor's Ratings Services report, Pileup of Indian foreign currency convertible bond maturities will test issuers and investors, published today, over half of them will have to opt for restructuring the bonds to avoid a payment default

"A tepid global economy has slowed FCCB issuers' revenue and profit growth, dragged down their stock prices, and left them less able to service debt," said S&P's credit analyst Vishal Kulkarni.

Kulkarni says that redeeming the bonds would also be challenging for many FCCB issuers because of their limited access to funds and high borrowing costs."

S&P notes that the restructuring options for these FCCB issuers include: (1) rolling over the bonds with later maturity dates and higher coupons; (2) lowering the conversion-to-equity price; or (3) getting bondholders to accept only a partial repayment of their principal.

The report classifies the FCCB issuers into four categories depending on their likely strategy to tackle FCCB maturities - likely to redeem at manageable cost; likely to redeem at high cost; likely to restructure the FCCBs; and could default on payment.