Description
pros and cons of foreign currency convertible bonds (FCCB) through industry examples. The examples used for explaining the concept are Ranbaxy, Reliance Communications, Tata Motors, Suzlon, Mahindra and Mahindra
FOREIGN CURRENCY CONVERTIBLE BONDS: PROS AND CONS OF FINANCING THROUGH FCCB THROUGH INDUSTRY EXAMPLES
Flow of Presentation
Introduction to FCCB Pros and Cons of FCCB and nuances of usage
Company analysis
Conclusion
FCCB
?
? ?
? ?
Convertible bond issued in a currency different than the issuer's domestic currency Combination of Debt and Equity Function as a bond by giving regular coupon and principal payments alongside providing the option of conversion into stock Generally available at US$ 1000 each Total amount raised by Indian Companies
? ? ?
$2.88 billion in 2009-2010 $7.96 billion in 2007 $ 5.20 billion in 2006
PARTICIPANTS
? ?
Issuer Local legal advisor
?
e.g. Law firms e.g. Company’s auditors Typically Banks e.g. Investment Banks e.g. Bank of New York / State Street / Global e.g. UK Law firms Typically Overseas Banks
?
Local accountants
?
?
Local custodian
?
?
Lead Manager
?
?
Depository bank
?
?
Overseas legal advisor
?
?
Escrow bank
?
Anatomy of an FCCB…
Capital in $ Issuer of FCCBs FCCBs 29-Apr-2009 29-Apr-2009 ? raises money in dollars ? receives FCCBs ? sets conversion price at premium (say Rs 125) ? can trade FCCBs if in liquidity crunch ? maturity period between 3-5 years Lender of money
If markets are good…
Issuer of FCCBs
Equity at conversion price Lender of money FCCBs returned
29-Apr-2014 29-Apr-2014 ? no need to pay in cash ? makes windfall profit by selling equity at prevailing market prices (say Rs 200) ? issues equity at pre decided price (Rs 125) ? equity dilution If markets are bad… Issuer of FCCBs FCCBs returned 29-Apr-2014 ? redeem bonds at par value ? huge requirement of cash ? buy back from market before maturity if traded at discount 29-Apr-2014 ? redeem FCCBs at par value ? principal investment comes back with small returns
Capital in $ Lender of money
5
Pros
Positive impact on the cash flow of the company
Cons
Difficult to get the subscription for FCCBs in a bear market
Interest rates/Coupon Rates are low compared to debt
EPS goes down when the FCCBs are converted; dilute the ownership
Does not dilute the ownership immediately
When interest rates seem to be going down , FCCBs are not preferred as equity is costlier than debt
Normally carry fewer bond covenants
Exchange rate risk
Benefits to Issuer and Investor
Benefits for Issuer
To bring down the exposure of a country by diversifying their portfolio Investment opportunities in emerging markets
Benefits for issuing company
Low overseas interest rates Relatively strong rupee against the greenback
Gives much of the upside of investment in equity
If share prices go up benefits from capital appreciation Debt elements protect the downside Assured of a fixed return and capital protection Investors buy FCCBs not as instruments of debt but for the lure of equity
FCCB does not require any rating nor any covenants like securities, cover etc
Can be raised within a month while pure debt takes longer to raise Low cost means of financing Cost of withholding tax is lower compared to other ECB instruments No need to shell out large sums of money to redeem the debt
Regulatory Mechanism
?
Permitted End Uses
? ? ? ?
For investment (e.g. import of capital goods) Implementation of new projects Modernization/expansion of existing production units in:
For Overseas direct investment in Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS)
For the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares
?
?
Non-Permitted End Uses
? ? ? ? ?
On-lending or investment in capital market Acquiring a company (or a part thereof) in India by a corporate For working capital For general corporate purpose For repayment of existing Rupee loans
Various Options Post Issue
?
Investors convert their FCCBs into Equity
?
When the conversion price is lower than the market price
Repay bondholders at maturity
? ? ?
?
If they don’t convert:
?
Raising domestic debt through banks Restructuring these i.e replacing with new set of FCCBs having lower conversion price Internal Accruals or Sale of Assets
?
? ?
Reset the conversion price to bring it closer to the current market price Altering the terms of the issue Buyback or prepayment
EFFECT ON EPS
?
?
?
?
Exercise of Conversion option leads to increase in number of outstanding shares. Basic EPS (Net Income – Preference Dividend)/(Weighted avg. no. of shares outstanding) Convertible bonds increase the number of shares outstanding and dilute the EPS Diluted EPS
?
Other instruments that contribute to dilution of EPS:
?
Convertible Preference shares, Warrants, Options
BUYBACK
?
RBI Regulations:
?
?
?
?
The amount of the buyback is limited to US $50 mn of the redemption value per company The companies have to use either internal accruals, cash reserves or raise fresh funds overseas. If Rupee resources are used for the buyback, a minimum discount of 25% on the book value is mandatory The FCCBs such bought back must be cancelled
?
Three factors that can hold back a company from buyback of FCCBs:
? ? ?
The price The sellers realizing the downside of buyback The lack of liquidity
INDIAN SCENARIO
INDIAN SCENARIO
Industry Wise..
Exchange Rate
FACTS
?
Reliance Communications is India’s second largest mobile phone service provider. It raised a total of $1,500 million through two FCCB issues – one in 2007 and the other in 2006
2007 $1 Billion $1000 5 years and one day (Feb 2012) Zero Rs 661 Singapore stock exchange Refinance the old loans and for expansion 2006 $500 million $1000 5 years and one day(May 2011) Zero Rs 480.68 Singapore stock exchange Expansion of telecom network
Parameters Total Amount Raised Price of each bond Maturity Coupon Conversion Price Listed on Purpose for Issue
Contd
?
The book runners : JP Morgan, Deutsche and HSBC
?
Issue was sold across Asia, Europe and the US and was oversubscribed by 3-4 times. It was trading at a premium in the aftermarket, which illustrates strong demand
?
For the 2006 issue, conversion price was 50% more than the previous
day’s closing price. The bonds on conversion would lead to issue of 4.62 crore equity shares with a face value of Rs 5 each
Buyback
?
The company bought back FCCBs worth
? ?
US $25 Million on Dec 29, 2008(250 FCCBs)
US $10 million on Jan 10, 2009 (100 FCCBs)
?
Reasons:
?
At the time of buyback, the gap between the share price of RComm and its conversion price was less and bonds were trading at 35% discount to the issue price.
?
?
It also had Rs 10,000 Crore in cash reserves.
Results:
? ? ?
The worth of the bonds has come down to US $650 Million from $1 Billion.
It reduced its liability and forex exposure.
The amount of FCCBs repurchased by the company will determine not only the gains to the size of the discount, but also the extent of reduction of debt from its balance sheet.
EPS ,DEPS, INTEREST COVERAGE RATIO
35 0.9 30 0.8 0.7 0.6 25 0.5 0.4 0.3 20 0.2 0.1 15 0 2007 0.47 7.20 6.3 2008 0.77 0.88 3.99 2009 0.67 1.68 2.49 16 14 12 10 8 6 4 2 0
EPS & Dil EPS
10 EPS Fully DEPS
2007 17.56 16.71
2008 26.32 24.97
2009 29.29 28.05
D/E Cash Flow in '000 Crs Int Coverage Ratio
The dilution of Earnings per share have a variety of reasons such as warrants and bonds including FCC Bonds
RComm
Facts
?
Ranbaxy in 2006 issued 5-year Zero Coupon Foreign Currency Convertible Bonds (FCCBs) priced at par value , raised $ 400 million with a Greenshoe option of $ 40 million.
?
These FCCBs were listed on Singapore Stock Exchange. The yield to maturity of the bonds is set at 4.8 per cent per annum
?
The Bond holders had the option to convert these into Common Shares or Global Depository Shares, at a price of Rs 716.32 per share (@ 60% premium to the previous
day’s issue price) with a fixed exchange rate of ` 44.15 per US $ 1, at any time on or
after April 27, 2006 and but before March 9, 2011
?
Utilize the capital raised through FCCBs to fund acquisitions and had set aggressive
revenue targets of $2 billion by 2007 and $5 billion by 2012 at the time of the issue.
Developments after the Issue
?
Ranbaxy missed the revenue target of $2 billion for 2007
?
Ranbaxy acquired the entire share capital of Mundogen Farma SA, generic
business of GlaxoSmithKline (GSK), in Spain for a total cash consideration of $ 5.73 million funded by FCCB proceeds
?
FCCB proceeds were also utilized for acquisition of Romania’s Terapia
SA, and other acquisitions in Italy, Belgium and South Africa
?
Ranbaxy was not able to buyback FCCBs since the cash received from
Daiichi Sankyo could not be used as per the guidelines
?
Conversion was revised to Rs 555 per share after the acquisition
EPS and DEPS
D/E and Interest Coverage ratio
Debt Position: The D/E ratio increased from 0.43 to 1.35 in 2006 because of the FCCB issue but it is still not very high and should not be an issue in case Ranbaxy wants to raise more debt from the market. D/E ratio further reduced to 1.05 in 2008 after Ranbaxy retired debt amounting to approx `3,400 crore after the stake sale to Daiichi Sankyo. Interest coverage ratios are also very high ranging 6.6-9.29 from 2005 to 2009 Interest
Variation of the stock over the last many years
FCCB issues by TATA Motors
• • July 2008 April 2004 ? raised $490 million ? tranche I: $300-million ? conversion price INR 960.96 ? conversion price INR 780.40 ? maturity comes on June 12, 2012 ? maturity on March 28, 2011 ? repurchased 170 Zero Coupon ? tranche II: $100 million Convertible Securities at avg. price of ? conversion price of INR 573.10 50.375%. ? maturity on March 28, 2009 ? outstanding bonds reduced from $490 million to $473 million. March 2006 ? $100 million raised in Japanese Yen (JPY 11760 million) ? convertible at INR 1,001.39 ? maturity on February 19, 2011 ? repurchased 30 Zero Coupon Convertible Notes at an average price of 54.27% 28 ? outstanding bonds reduced from JPY 11760 Mn to
•
Impact on EPS
Debt position
Stock Price Movement wrt Sensex
on March 23 this year, the company had offered to convert bonds worth $431 million into shares about a year before they mature. The company’s share price fell 3 per cent because the conversion would dilute the company’s share capital by 4.3 per cent.
Developments since the Issue and future
On January 1, 2008, Tata Motors’ share price was at Rs 741.45, while it fell to Rs 159.05 on December 31, 2008. The prices were being reviewed and all these adjustments are being made because of ‘reset clauses’ attached to the convertible bonds On 15-Apr’09, Tata Motors share prices jumped 12.41% to INR 283.50 on BSE after the company repurchased and extinguished its US and Japan listed foreign currency convertible bonds at 50% discount The notes early conversion offer made by Tata Motors in March this year looks like a win-win situation for note holders and company. Redemption options on its yen and dollar denominated FCCBs due March and April 2011 offers the bondholders an incentive to convert it to equity.
FACTS
?
?
? ? ? ?
Issue Size: USD 300 mn and 200 mn Maturity: 5 yrs and 1 day Conversion price: 1,800 @ 59.59% premium Coupon: Zero Mandatory Conversion feature after 24 months Listing: Singapore Exchange Securities Trading Ltd
Developments since the Issue and future
?
?
Conversion price revised to Rs 360 and Rs 370 and then again to Rs 95 and 100 In April last year, the company had fixed conversion price of Rs 76.67 per share
Impact on EPS
?
There is not much difference between EPS and Diluted EPS In April last year
?
In 2009 figures, there has been a drastic fall owing to the financial crunch
Debt Position
?
The D/E ratio has increased while interest coverage ratio has dipped below alarming levels suggesting the company is not in shape to finance its future projects effectively
Stock prices
?
Suzlon stock has underperformed with respect to the Sensex
FACTS
Mahindra & Mahindra is one of the largest companies in the auto industry and hascurrently issued FCCBs worth $ 189.5 million outstanding after issuing them in 2004 and 2006 over wide range of investors in Western Europe and Asia. Bought back $4 Parameters Million in 2009 2006 2004
Total Amount Raised
No of bonds Issued Face Value of each bond Maturity Coupon Conversion Price Current Price YTM Purpose
$200 million
2000 $100000 5 years Zero Rs 922.04 Rs 664.22 6.78% Up gradation of existing facilities , expansion & acquisition at an international level JM Morgan Stanley Ltd and Kotak Investment Banking
$100 million
1000 $100000 5 years Zero Rs 647.05 472.30 6.49% Product development, upgradation and expansion of the existing manufacturing facilities ABN Amro Rothschild and Kotak Investment Banking
Book Runners
EPS and DEPS
D/E and Interest Coverage Ratio
•D/E has been changed depending on buy backs. In 2009, the company has bought some of the outstanding FCCBs and hence the dilution has also reduced. •The cash flows decreased in 2008 and 2009 due to buyback. The D/E ratio increased after the FCCBs were issued.
Stock Price
Monthly data for MNM stock over the past 4 years on the BSE shows the problem incurred due to a dip in stock price levels during late 2008 and early 2009 making the conversion option for convertible bonds highly unlikely. Stock prices on Indian exchanges and global GDR prices are highly co related hence conversion of FCCB into GDRs were unlikely prompting the company to buy back such bonds before conversion to equity. But clearly with resurgence in prices the company need not in invest cash in buying back its own bonds and can consider FCCB issue for future source of financing
doc_498189498.pptx
pros and cons of foreign currency convertible bonds (FCCB) through industry examples. The examples used for explaining the concept are Ranbaxy, Reliance Communications, Tata Motors, Suzlon, Mahindra and Mahindra
FOREIGN CURRENCY CONVERTIBLE BONDS: PROS AND CONS OF FINANCING THROUGH FCCB THROUGH INDUSTRY EXAMPLES
Flow of Presentation
Introduction to FCCB Pros and Cons of FCCB and nuances of usage
Company analysis
Conclusion
FCCB
?
? ?
? ?
Convertible bond issued in a currency different than the issuer's domestic currency Combination of Debt and Equity Function as a bond by giving regular coupon and principal payments alongside providing the option of conversion into stock Generally available at US$ 1000 each Total amount raised by Indian Companies
? ? ?
$2.88 billion in 2009-2010 $7.96 billion in 2007 $ 5.20 billion in 2006
PARTICIPANTS
? ?
Issuer Local legal advisor
?
e.g. Law firms e.g. Company’s auditors Typically Banks e.g. Investment Banks e.g. Bank of New York / State Street / Global e.g. UK Law firms Typically Overseas Banks
?
Local accountants
?
?
Local custodian
?
?
Lead Manager
?
?
Depository bank
?
?
Overseas legal advisor
?
?
Escrow bank
?
Anatomy of an FCCB…
Capital in $ Issuer of FCCBs FCCBs 29-Apr-2009 29-Apr-2009 ? raises money in dollars ? receives FCCBs ? sets conversion price at premium (say Rs 125) ? can trade FCCBs if in liquidity crunch ? maturity period between 3-5 years Lender of money
If markets are good…
Issuer of FCCBs
Equity at conversion price Lender of money FCCBs returned
29-Apr-2014 29-Apr-2014 ? no need to pay in cash ? makes windfall profit by selling equity at prevailing market prices (say Rs 200) ? issues equity at pre decided price (Rs 125) ? equity dilution If markets are bad… Issuer of FCCBs FCCBs returned 29-Apr-2014 ? redeem bonds at par value ? huge requirement of cash ? buy back from market before maturity if traded at discount 29-Apr-2014 ? redeem FCCBs at par value ? principal investment comes back with small returns
Capital in $ Lender of money
5
Pros
Positive impact on the cash flow of the company
Cons
Difficult to get the subscription for FCCBs in a bear market
Interest rates/Coupon Rates are low compared to debt
EPS goes down when the FCCBs are converted; dilute the ownership
Does not dilute the ownership immediately
When interest rates seem to be going down , FCCBs are not preferred as equity is costlier than debt
Normally carry fewer bond covenants
Exchange rate risk
Benefits to Issuer and Investor
Benefits for Issuer
To bring down the exposure of a country by diversifying their portfolio Investment opportunities in emerging markets
Benefits for issuing company
Low overseas interest rates Relatively strong rupee against the greenback
Gives much of the upside of investment in equity
If share prices go up benefits from capital appreciation Debt elements protect the downside Assured of a fixed return and capital protection Investors buy FCCBs not as instruments of debt but for the lure of equity
FCCB does not require any rating nor any covenants like securities, cover etc
Can be raised within a month while pure debt takes longer to raise Low cost means of financing Cost of withholding tax is lower compared to other ECB instruments No need to shell out large sums of money to redeem the debt
Regulatory Mechanism
?
Permitted End Uses
? ? ? ?
For investment (e.g. import of capital goods) Implementation of new projects Modernization/expansion of existing production units in:
For Overseas direct investment in Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS)
For the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares
?
?
Non-Permitted End Uses
? ? ? ? ?
On-lending or investment in capital market Acquiring a company (or a part thereof) in India by a corporate For working capital For general corporate purpose For repayment of existing Rupee loans
Various Options Post Issue
?
Investors convert their FCCBs into Equity
?
When the conversion price is lower than the market price
Repay bondholders at maturity
? ? ?
?
If they don’t convert:
?
Raising domestic debt through banks Restructuring these i.e replacing with new set of FCCBs having lower conversion price Internal Accruals or Sale of Assets
?
? ?
Reset the conversion price to bring it closer to the current market price Altering the terms of the issue Buyback or prepayment
EFFECT ON EPS
?
?
?
?
Exercise of Conversion option leads to increase in number of outstanding shares. Basic EPS (Net Income – Preference Dividend)/(Weighted avg. no. of shares outstanding) Convertible bonds increase the number of shares outstanding and dilute the EPS Diluted EPS
?
Other instruments that contribute to dilution of EPS:
?
Convertible Preference shares, Warrants, Options
BUYBACK
?
RBI Regulations:
?
?
?
?
The amount of the buyback is limited to US $50 mn of the redemption value per company The companies have to use either internal accruals, cash reserves or raise fresh funds overseas. If Rupee resources are used for the buyback, a minimum discount of 25% on the book value is mandatory The FCCBs such bought back must be cancelled
?
Three factors that can hold back a company from buyback of FCCBs:
? ? ?
The price The sellers realizing the downside of buyback The lack of liquidity
INDIAN SCENARIO
INDIAN SCENARIO
Industry Wise..
Exchange Rate
FACTS
?
Reliance Communications is India’s second largest mobile phone service provider. It raised a total of $1,500 million through two FCCB issues – one in 2007 and the other in 2006
2007 $1 Billion $1000 5 years and one day (Feb 2012) Zero Rs 661 Singapore stock exchange Refinance the old loans and for expansion 2006 $500 million $1000 5 years and one day(May 2011) Zero Rs 480.68 Singapore stock exchange Expansion of telecom network
Parameters Total Amount Raised Price of each bond Maturity Coupon Conversion Price Listed on Purpose for Issue
Contd
?
The book runners : JP Morgan, Deutsche and HSBC
?
Issue was sold across Asia, Europe and the US and was oversubscribed by 3-4 times. It was trading at a premium in the aftermarket, which illustrates strong demand
?
For the 2006 issue, conversion price was 50% more than the previous
day’s closing price. The bonds on conversion would lead to issue of 4.62 crore equity shares with a face value of Rs 5 each
Buyback
?
The company bought back FCCBs worth
? ?
US $25 Million on Dec 29, 2008(250 FCCBs)
US $10 million on Jan 10, 2009 (100 FCCBs)
?
Reasons:
?
At the time of buyback, the gap between the share price of RComm and its conversion price was less and bonds were trading at 35% discount to the issue price.
?
?
It also had Rs 10,000 Crore in cash reserves.
Results:
? ? ?
The worth of the bonds has come down to US $650 Million from $1 Billion.
It reduced its liability and forex exposure.
The amount of FCCBs repurchased by the company will determine not only the gains to the size of the discount, but also the extent of reduction of debt from its balance sheet.
EPS ,DEPS, INTEREST COVERAGE RATIO
35 0.9 30 0.8 0.7 0.6 25 0.5 0.4 0.3 20 0.2 0.1 15 0 2007 0.47 7.20 6.3 2008 0.77 0.88 3.99 2009 0.67 1.68 2.49 16 14 12 10 8 6 4 2 0
EPS & Dil EPS
10 EPS Fully DEPS
2007 17.56 16.71
2008 26.32 24.97
2009 29.29 28.05
D/E Cash Flow in '000 Crs Int Coverage Ratio
The dilution of Earnings per share have a variety of reasons such as warrants and bonds including FCC Bonds
RComm
Facts
?
Ranbaxy in 2006 issued 5-year Zero Coupon Foreign Currency Convertible Bonds (FCCBs) priced at par value , raised $ 400 million with a Greenshoe option of $ 40 million.
?
These FCCBs were listed on Singapore Stock Exchange. The yield to maturity of the bonds is set at 4.8 per cent per annum
?
The Bond holders had the option to convert these into Common Shares or Global Depository Shares, at a price of Rs 716.32 per share (@ 60% premium to the previous
day’s issue price) with a fixed exchange rate of ` 44.15 per US $ 1, at any time on or
after April 27, 2006 and but before March 9, 2011
?
Utilize the capital raised through FCCBs to fund acquisitions and had set aggressive
revenue targets of $2 billion by 2007 and $5 billion by 2012 at the time of the issue.
Developments after the Issue
?
Ranbaxy missed the revenue target of $2 billion for 2007
?
Ranbaxy acquired the entire share capital of Mundogen Farma SA, generic
business of GlaxoSmithKline (GSK), in Spain for a total cash consideration of $ 5.73 million funded by FCCB proceeds
?
FCCB proceeds were also utilized for acquisition of Romania’s Terapia
SA, and other acquisitions in Italy, Belgium and South Africa
?
Ranbaxy was not able to buyback FCCBs since the cash received from
Daiichi Sankyo could not be used as per the guidelines
?
Conversion was revised to Rs 555 per share after the acquisition
EPS and DEPS
D/E and Interest Coverage ratio
Debt Position: The D/E ratio increased from 0.43 to 1.35 in 2006 because of the FCCB issue but it is still not very high and should not be an issue in case Ranbaxy wants to raise more debt from the market. D/E ratio further reduced to 1.05 in 2008 after Ranbaxy retired debt amounting to approx `3,400 crore after the stake sale to Daiichi Sankyo. Interest coverage ratios are also very high ranging 6.6-9.29 from 2005 to 2009 Interest
Variation of the stock over the last many years
FCCB issues by TATA Motors
• • July 2008 April 2004 ? raised $490 million ? tranche I: $300-million ? conversion price INR 960.96 ? conversion price INR 780.40 ? maturity comes on June 12, 2012 ? maturity on March 28, 2011 ? repurchased 170 Zero Coupon ? tranche II: $100 million Convertible Securities at avg. price of ? conversion price of INR 573.10 50.375%. ? maturity on March 28, 2009 ? outstanding bonds reduced from $490 million to $473 million. March 2006 ? $100 million raised in Japanese Yen (JPY 11760 million) ? convertible at INR 1,001.39 ? maturity on February 19, 2011 ? repurchased 30 Zero Coupon Convertible Notes at an average price of 54.27% 28 ? outstanding bonds reduced from JPY 11760 Mn to
•
Impact on EPS
Debt position
Stock Price Movement wrt Sensex
on March 23 this year, the company had offered to convert bonds worth $431 million into shares about a year before they mature. The company’s share price fell 3 per cent because the conversion would dilute the company’s share capital by 4.3 per cent.
Developments since the Issue and future
On January 1, 2008, Tata Motors’ share price was at Rs 741.45, while it fell to Rs 159.05 on December 31, 2008. The prices were being reviewed and all these adjustments are being made because of ‘reset clauses’ attached to the convertible bonds On 15-Apr’09, Tata Motors share prices jumped 12.41% to INR 283.50 on BSE after the company repurchased and extinguished its US and Japan listed foreign currency convertible bonds at 50% discount The notes early conversion offer made by Tata Motors in March this year looks like a win-win situation for note holders and company. Redemption options on its yen and dollar denominated FCCBs due March and April 2011 offers the bondholders an incentive to convert it to equity.
FACTS
?
?
? ? ? ?
Issue Size: USD 300 mn and 200 mn Maturity: 5 yrs and 1 day Conversion price: 1,800 @ 59.59% premium Coupon: Zero Mandatory Conversion feature after 24 months Listing: Singapore Exchange Securities Trading Ltd
Developments since the Issue and future
?
?
Conversion price revised to Rs 360 and Rs 370 and then again to Rs 95 and 100 In April last year, the company had fixed conversion price of Rs 76.67 per share
Impact on EPS
?
There is not much difference between EPS and Diluted EPS In April last year
?
In 2009 figures, there has been a drastic fall owing to the financial crunch
Debt Position
?
The D/E ratio has increased while interest coverage ratio has dipped below alarming levels suggesting the company is not in shape to finance its future projects effectively
Stock prices
?
Suzlon stock has underperformed with respect to the Sensex
FACTS
Mahindra & Mahindra is one of the largest companies in the auto industry and hascurrently issued FCCBs worth $ 189.5 million outstanding after issuing them in 2004 and 2006 over wide range of investors in Western Europe and Asia. Bought back $4 Parameters Million in 2009 2006 2004
Total Amount Raised
No of bonds Issued Face Value of each bond Maturity Coupon Conversion Price Current Price YTM Purpose
$200 million
2000 $100000 5 years Zero Rs 922.04 Rs 664.22 6.78% Up gradation of existing facilities , expansion & acquisition at an international level JM Morgan Stanley Ltd and Kotak Investment Banking
$100 million
1000 $100000 5 years Zero Rs 647.05 472.30 6.49% Product development, upgradation and expansion of the existing manufacturing facilities ABN Amro Rothschild and Kotak Investment Banking
Book Runners
EPS and DEPS
D/E and Interest Coverage Ratio
•D/E has been changed depending on buy backs. In 2009, the company has bought some of the outstanding FCCBs and hence the dilution has also reduced. •The cash flows decreased in 2008 and 2009 due to buyback. The D/E ratio increased after the FCCBs were issued.
Stock Price
Monthly data for MNM stock over the past 4 years on the BSE shows the problem incurred due to a dip in stock price levels during late 2008 and early 2009 making the conversion option for convertible bonds highly unlikely. Stock prices on Indian exchanges and global GDR prices are highly co related hence conversion of FCCB into GDRs were unlikely prompting the company to buy back such bonds before conversion to equity. But clearly with resurgence in prices the company need not in invest cash in buying back its own bonds and can consider FCCB issue for future source of financing
doc_498189498.pptx