Introduction
Foreign Currency Convertible Bonds (FCCBs) are hybrid financial instruments issued by Indian Public Limited Companies to raise capital in foreign markets. They are bonds denominated in foreign currency and are convertible into equity shares of the issuing company after a specified period, under pre-agreed terms. FCCBs combine the features of debt and equity, making them an attractive tool for companies seeking international funding. This article explains the structure, features, and regulatory aspects of FCCBs issued by Public Limited Companies.

Definition of FCCBs
FCCBs are debt instruments issued by a company to foreign investors that offer the option to convert the bonds into equity shares of the issuer at a later date. They are denominated in foreign currencies like US dollars, euros, or yen and pay periodic interest until conversion or maturity.

Purpose of Issuing FCCBs
Public Limited Companies issue FCCBs to:

• Raise capital from international investors
  
• Access funds at lower interest rates compared to domestic debt
  
• Delay equity dilution until conversion
  
• Fund expansion, acquisition, or working capital needs
  

Structure of FCCBs
FCCBs typically include:

• A fixed maturity period (usually 3 to 5 years)
  
• A conversion price and schedule agreed upon at issuance
  
• Coupon payments during the bond term
  
• Optional redemption if not converted
  

Investors have the right to convert the bond into shares or redeem it at maturity.

Regulatory Framework
FCCBs are regulated under the Foreign Exchange Management Act (FEMA), Companies Act, 2013, and guidelines issued by the Reserve Bank of India (RBI). The issuance must comply with:

• End-use restrictions on foreign funds
  
• Minimum maturity norms
  
• Reporting of proceeds through Form FC-GPR and ECB returns
  

Advantages for Companies

• Access to large pools of global capital
  
• Lower borrowing costs due to equity conversion option
  
• Enhanced investor confidence and global presence
  
• Deferred dilution of control
  

Risks and Challenges

• Exposure to foreign exchange fluctuations
  
• Risk of non-conversion if share price falls below the conversion price
  
• Obligation to redeem at premium, increasing financial burden
  
• Regulatory compliance and investor reporting complexity
  

Listing and Trading of FCCBs
FCCBs are often listed on international exchanges such as the Singapore Stock Exchange or Luxembourg Stock Exchange to provide liquidity to investors. The conversion into shares is executed as per SEBI and stock exchange norms.

Impact on Shareholders and Capital Structure
On conversion, FCCBs dilute the equity stake of existing shareholders but reduce debt and interest burden. Companies must maintain authorized share capital to accommodate possible conversions.

Conclusion
FCCBs serve as an effective financial instrument for Public Limited Companies to raise foreign capital while balancing debt and equity considerations. Proper structuring and compliance with regulatory norms are essential to maximize benefits and minimize risks associated with FCCB issuance.

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