Investment Valuation in India

A convertible bond (CB) is debt at issuance and through its life, until converted into shares. Conversion into shares happens if the share price is above a certain share price (“conversion price”) either at maturity or through the life of the bonds. Typically on the day the convertible bond is priced, the volume weighted average price of the shares or the closing price of the shares is taken as a base price (“reference price”). Conversion price is then calculated as (reference price x (1 + conversion premium)) , where the conversion premium is typically between 10% and 30%. The number of shares per bond is fixed by dividing the denomination of the bond with the conversion price. This defines the maximum number of new shares that can be issued at any time, limiting maximum dilution for existing shareholders. In order to see how this works, let us take a simple example: Assumptions Issue Amount: USD 25m Reference price (closing price of shares): USD 100 Denomination of bonds: USD 100,000...

This is in response to the queries I received on whether ECB or FCCB is more convenient/liberal/less regulated. For guidelines on each of them, please refer to the links attached in the respective articles. FCCB http://www.icai.org/icairoot/publications/complimentary/cajournal_nov05/703-708.pdf . ECB http://www.icai.org/icairoot/publications/complimentary/cajournal_may04/p1216-19.pdf As regards which is more convenient, it always depends on the company raising funds. Historically, companies prefer ECBs over FCCBs . The RBI data for the month of December 2007 showed only 7 of 44 companies raising funds through FCCBs automatic route and all 7 companies preferring the ECB over FCCB through approval route. http://rbidocs.rbi.org.in/rdocs/ECB/pdfs/83662.pdf Government has said that it is contemplating relaxing norms governing external commercial borrowings (ECBs) to enable Indian corporates access higher foreign capital at low cost. Besides, a review is underway to remove restrictions on fo...

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. (Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs The ICAI came out with a detail...