Ravi Nedungadi, CFO & president (finance) at McDowell & Company believes that rising interest rates would make FCCBs less attractive. However, once the market gains momentum, the interest rates would settle down.
Nedungadi also states that the company is not looking at a strategic investor at the moment. He further adds that it did not have a reset clause in the McDowell FCCB.
Excerpts from CNBC-TV18's exclusive interview with Ravi Nedungadi:
What do you plan to do with your FCCB? Did you have a reset clause in the first place?
No, we did not have a reset clause. We had launched the FCCB in order to make it conversion-attractive. So we can settle it for a relatively lower premium to the reference price. FCCBs have often been issued at 40 per cent plus premiums.
We chose 30 per cent premium and we also tried a small coupon payout on a semi-annual basis so as to reduce the cost of carry to the investor. The idea was that after a period of 18 months of issue, we could force the conversion if they cover the cost of carry and the premium on that.
So would you force the conversion?
Conversion requires the market price of the share to be at a particular level, thus reflecting the premium to the carry.
As a CFO, do you think that this product might lose some of its charm; considering what has happened to the market?
I think that like every financial instrument, there is some cyclical feature that we have to take into account. So for a while, FCCBs may not be very attractive but as the market gains momentum, the interest rates will settle down. The other factor is that the interest rates are moving up; that could also make FCCB lose some of their attractiveness.
In the light of the recent stock market crash, which has brought down your stock price, would you be going ahead with your long-term plans of getting in large investors in the foreseeable future?
There is no pressure to bring in an investor at this point of time. I think that the timing of the GDR and the FCCB issues in March took a lot of pressure off our balance sheet. We now have the flexibility of time.
Would you want to do get the strategic investor in, considering the fact the stock price is not good?
Strategic investors would not be governed by stock price. When we did the Scottish & Newcastle deal for United Breweries, they came in at a multiple of what the stock market price was. Having said that, we are not presently in any conversation specifically for a strategic investment.
