Foreign currency convertible bonds

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Foreign currency convertible bonds (FCCBs) are bonds issued in a currency different from the issuer’s home currency. Companies use FCCBs to raise money in foreign currencies, which helps multinational firms that deal in many currencies. FCCBs keep all the features of regular convertible bonds, so investors can convert them into shares later or keep the bonds as debt. They are popular in India among firms seeking funds in other currencies. FCCBs are traded on stock exchanges as quasi-debt instruments. Typical investors include hedge funds, arbitrageurs, and foreign investors. On the issuer’s balance sheet, FCCBs show up as liabilities. Under IFRS, the value of outstanding bonds is monitored and adjusted to reflect market conditions, with rules from IAS 39, IAS 32, and IFRS 7 guiding the accounting. An FCCB can be redeemed at maturity or at a price the issuer has promised. If the issuer can’t meet the promised price, they redeem as agreed. The price of an FCCB moves opposite to its yield: when yields rise, the price falls. FCCBs are equity-linked debt: after a set period, the holder can convert them into equity or depository receipts at a predetermined price or exchange rate, or choose to keep the bonds.