FCCB drives growth overseas

Tier-II and tier-III technology companies are taking the FCCB (foreign currency convertible bonds) route to fund their overseas expansion-cum-acquisition plans.

Many of these companies have either already raised the funds or passed enabling resolutions expressing their intent. The appetite for FCCBs continues, as this is one of the fastest ways to raise funds from overseas markets and even postpone dilution of equity.

The Chief Financial Officer of Prithvi Information Technology Services, Mr P.S. Shastry, said the company had earlier this year raised $50 million mainly to fund overseas expansion and to grow inorganically.

“We were amongst the few IT companies which opted for FCCBs when there are other options such as global depository receipts (GDRs) or American depository receipts (ADRs). But the latter meant dilution of equity. Therefore, we preferred the FCCBs. However, lately, the Reserve Bank of India and the Finance Ministry have come up with new guidelines that restrict companies from raising more than $20 million,” Mr Shastry said.

The Chief Financial Officer of Hyderabad-based Northgate Technologies Ltd, Mr Anil K. Singh, told Business Line, “the company recently passed an enabling resolution that empowers it to raise up to Rs 400-450 crore. However, we are in the process of finalising plans for the offer. This may be either through a global depository receipt (GDR) or any other instrument, the decision has not been taken yet.”

“FCCBs bring some advantages. One, the process takes much lesser time, wherein a company could potentially raise funds in less than two months and, secondly, it also brings some global investors, providing provide additional visibility in the process,” Mr Singh explained.

The FCCBs come with a premium and when overseas investors deploy their funds, it only reflects their confidence in the company’s business plans.

The Government may have brought in the changes in FCCB norms as it has huge foreign reserves. Only companies investing overseas can raise more funds through FCCBS. For a company such as Northgate, which is expanding in Europe, South East Asia-Singapore and Hong Kong, there is no problem, Mr Singh said.

Many companies in technology and related sectors such as Bartronics, ICSA (India), Moser Baer, Mastek, Virinchi Technology have either raised funds through FCCBs or are in the process of offering them.