Explain Foreign Currency Convertible Bond (FCCB).

Foreign Currency Convertible Bond (FCCB) FCCBs represent equity linked debt security which can be converted into shares or into depository receipts. The investors of FCCBs have the option to convert it into equity normally in accordance with pre-determined formula and sometimes also at a pre-determined exchange rate. The investor also has the option to retain the bond. The FCCBs by virtue of convertibility offers to issuer a privilege of lower interest cost than that of similar non-convertible debt instrument. However, it must be kept in mind that FCCB issue proceeds need to conform to ECB end use requirements. In addition, 25% of the FCCB proceeds can be used for general corporate restructuring. The major drawbacks of FCCBs are that the issuing company cannot plan its capital structure as it is not assured of conversion of FCCBs. Moreover, the projections for cash outflow at the time of maturity cannot be made.