Definition of Foreign Currency Convertible Bond (FCCB), benefits
Foreign Currency Convertible Bonds are a special kind of bonds with extra features and benefits. Get additional information about FCCB from here.
Meaning of Foreign Currency Convertible Bond (FCCB)
Foreign Currency Convertible Bonds are the combined form of date and equity instrument. These are the bonds which are not issued in domestic currency rather these are issued in currency of some other currency. In other words, it is a method by which a company can raise funds in some other foreign currency. They are like regular coupons and have all features of convertible bond.
An example of FCCB: If an Indian company issues convertible bonds in Euros to open a new unit in Germany, then such bonds will be termed as Foreign Currency Convertible Bonds. Advantages of Foreign Currency Convertible Bond (FCCB)
Both investors as well as company are benefited by FCCB. Benefit of FCCB to investor is that they can convert it into stock. Thus, if investor desires to convert his bonds into stock of the company, then he can. It is also secure with respect to payment view. Investor has the guarantee that he will be paid and his investment is completely secure. Some times, investor gets the return more than the guaranteed amount.
The benefit of FCCB to company is that company has to pay fewer return under coupon payment, thus reducing its expenses and increasing the overall profitability of the company. Foreign exchange risk is also reduced for the company issuing bonds.