What is exchangeable bonds with examples?

For example, let’s consider a Company XYZ bond that is exchangeable into shares of Company ABC at an exchange ratio of 50:1. This means that you could exchange every $1,000 of par value you own of XYZ bonds into 50 shares of ABC stock. Exchangeable bonds typically mature in three to six years.

How do exchangeable bonds work?

An exchangeable debt or bond can be converted into equity of a company other than the issuer of the debt. The investors keep the option of converting the bond into equity but not the legal obligation.

Why do companies issue bonds in foreign currency?

The primary reason for issuing Eurobonds is a need for foreign currency capital. Since the bonds are fixed-income securities; they usually offer a fixed interest rate to investors. Imagine, as an example, a US company aims to permeate into a new market and plans to erect a large factory, say, in China.

What do you mean by FCCB?

A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer’s domestic currency. In other words, the money being raised by the issuing company is in the form of foreign currency. A convertible bond is a mix between a debt and equity instrument.

What is an exchangeable?

Exchangeable, interchangeable apply to something that may replace something else. That which is exchangeable may be exchanged for money, credit, or other purchases to the amount of the original purchase: These dishes are exchangeable if you find they are not satisfactory.

What is the difference between convertible bond and exchangeable bond?

An issuer decides when an exchangeable bond is exchanged for shares whereas with a convertible debt the bond is converted into shares or cash when the bond matures.

What is the difference between euro bond and foreign bond?

Eurobonds: Underwritten by an international company using domestic currency and then traded outside of the country’s domestic market. Foreign bonds: Issued in a domestic country by a foreign company, using the regulations and currency of the domestic country.

Why do countries buy foreign bonds?

When a government needs money to fund its operations, it can raise cash by issuing debt in its own currency. For this reason, countries may decide to issue debt in a foreign currency, thereby quelling investor fears of currency devaluation eroding their earnings.

Can banks issue FCCB?

Offered Company: The Offered Company shall be a listed company, which is engaged in a sector eligible to receive Foreign Direct Investment and eligible to issue or avail of Foreign Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB)….Master Circulars.

Who can issue FCCB?

Attention of authorised dealers is invited to A.P.(DIR Series) Circular No. 29 dated March 11, 2002 allowing an Indian company or a body corporate, created by an Act of Parliament, to issue FCCBs under the automatic route without the approval of Government or the Reserve Bank.

How do you value exchangeable bonds?

Value of convertible bond = independent value of straight bond + independent value of conversion option.

What are foreign bonds and Eurobonds What are the advantages of Eurobonds owner foreign bonds?

The advantages of Eurobonds to investors are: Euro bonds are issued in such a form that interest can pay free of income or withholding taxes of the borrowing countries. Also, the bonds issued in bearer form and are held outside the country of the investor, enabling the investor to evade domestic income tax.

What is a foreign currency bond?

The principal and the interest of which is payable in foreign currency. The issuer of the bond is an Indian company. The bonds are subscribed by a person resident outside India. The bonds are exchangeable into equity shares of another company which is also called the offered company.

What is foreign currency exchangeable bond scheme (fceb)?

Issue of foreign currency exchangeable bonds (FCEB) are regulated by Foreign Currency Exchangeable Bond Scheme 2008 issued by Ministry of Finance, Department of Economic Affairs. What is FCEB? A bond expressed in foreign currency. The principal and the interest of which is payable in foreign currency. The issuer of the bond is an Indian company.

What are exchangeable bonds and how to invest in them?

In simple words, investors consider exchangeable bonds as stock investments with coupons attached. This due to the reason that exchangeable bonds trade like bonds when the share price is far below the exchange price however trade like stocks when the share price is above the exchange price.

What is the minimum maturity of foreign currency exchangeable bond?

Prior approval of the Reserve Bank of India is required for issuance of foreign currency exchangeable bond. The minimum maturity of the FCEB is five years for purpose of redemption. The exchange option can be exercised at any time before redemption.