FCCB can be fixed if Indian FM acts prudently

Let's see how Debt can destroy any company or company.
From Debt Equity Ratio of  less than 1 it can simply spike to more than 2 & can derail the entire company.
Today in India we have many companies like Sintex, Venus Remedies, Tulip Telecom, Geodesic Ltd  , Educomp Solutions, Jindal Stainless steel.. and many more for whose management FCCB has been nightmare.
FCCB= Foreign Convertible Bonds has raised lot of eye borrows over past 1year , the same was used to be  fancy item for all CFO’s n related Indian Companies as cheap source of financing in year 2005-2007.
Many of them are Zero coupon Bonds
These Bonds carried an yield of 5 to 7% without the Foreign Exchange Impact.
In case of bullet Bonds where Coupons are paid annually, this keeps check on financial health of company as Bond Issuers need  to pay Annual /Semi Annual Coupon Payments.
Nearly 250 plus Indian listed /unlisted companies raised more than USD 16 billion during year range of 2006-2009.
Most of the Fully convertible Bonds had Tenor of 4 to 6 years. Refer to RBI clause on External Commerical Borrowings.
Rupee was in an uptrend against the USD & Average Rupee was at 39-41 Range during this period.
It's challenging environment for this companies as the liquidity has dried up in Indian Domestic markets. And due to Forex Impact in their Balance Sheet doesn't reflect an Healthy picture to score better Credit ratings which directly impact the borrowing cost for this companies.
The INR has since lost more than 32 percentile against the US dollar.
Quantum of this Downward trend has resulted in  excess amount of approx US$4bn to the value of FCCB maturities in 2011-2013. (15billion multiplied by 36%percent).
Tough Economic Environment especially after Lehman Brother Crisis has impacted performance of many of this companies.
There has been significant stretch in Working capital requirements due to stretched Cash Conversion Cycle.
Now that the MTM difference is accounted in the Financial Books due to Forex Exchange loss in this loan, Share prices have taken hit due to lower EPS n thereby lower P/E.
In some cases Promoters even pledged stake to support the stretched working capital requirements and some had to issue warrants to support the falling stock prices.
Due to falling stock prices and unable to meet margin calls lenders with whom stock was pledged further flooded the market with companies shares.
*** Some smart Hedge funds did buy the rock bottom FCCB's from foreign exchanges and made money upon successful redemption.
Some companies with strong business  lines have extended the fccb conversion date to future at new conversion price which has lead to further dilution in Equity prices.

This Domino impact has resulted in Bondholders opting for Option 1 is Redemption of Bond for Cash and not conversion to Equity.
In cases where the current price is trading at a significant discount to the conversion price then companies will need to adopt other alternatives to pay back their investors.
With Rupee at 53/- for 5 year Term companies need to generate an return from their Invested project(Capex) a an excess IRR of 7% on Annualised basis.
One off Impact would have been 33% project for such projects.

Macro Economic Factors than needs to be changed to fix the economy in long run.

If Indian Govt increases taxes on Gold Import to more than 10% which will not be exported back can reduce India's Current Account Deficit from 5% to less than 1%.

Chances of India defaulting is less and it's upto to Indian Govt to act smartly by imposing tax on NRI on their Investments in Real Estates some where in range of 5% to 10% as upfornt load which will cool of Indian Real Estate market and make it affordable for ordinary citizens.

We are developing Nation therefore their should be small percentile of taxes on NRI's towards nation building or Alternatively Indian Govt should launch Tax free bond provided the funds are locked for 5years and carries low yield of less than 5%. Such fund should not be allowed to be pumped in Capital Market. It should be handled by Institutions like IDBI , L&T , HDFC towards connecting ports, Uplifting Rail Infrastructure, Building of National highways & Hospitals along with Medical Institutes for poor to start with.

Ethanol blending should be made compulsory to reduce the Oil Imports.

If these Oil & Gold Import  are controlled India can command better credit rating,may be better than UK in coming years. Indians have consumed more than 300 billion in Gold just in last 20 years.

Rupee will strength steadily and will have positive impact on Companies with External Borrowings.

Any ways let's see the impact of Currency on FCCB

Company has so shell out more than 35% due to FCCB impact.

I'm curious to see what Geodesic will be doing for FCCB redemption.

We also need to note that their are RBI guidelines which needs to be followed for Buy Back, Redemption, Repricing of FCCB.

Until substainally usuage is not determined FCCB money cannot be brought back to India.

Geodesic had parked it's money abroad and therefore less likely to have been impacted with Forex Exchange impact.

Similarly FCCBs buyback and re-issuance has some guidelines which will be shared in coming days.

Geodesic has been holding FCCB in holding company to adhere to RBI guidelines.

Also Holding in some of countries helps in Tax benefits for this holding companies

Keep watch on Geodesic if FCCB gets paid off one can positively consider it as Investment option and can see reasonable returns of more than 50% once stock stabilises at levels of 20/- plus.

Tulip telecom is interesting case once CDR plan gets clear and stake sale in Data  center will result in some value unlocking similar to Wockhardt.