Since my last post Sakthi sugar is still underperforming the markets. On the other hand Dhampur sugar which came out with good results was the star for the week. A reason some of my friends feel for its underperformance is the huge amount of debt it is carrying in its books. A large portion of the debt is on account of the FCCB issued by the company in 2006 (Check BSE)
However since my last post some key events have taken place in respect of these FCCBs which is a significant positive for this stock. Before we get into that its important that we understand what an FCCB is.
In a nutshell an FCCB is a bond issued to garner funds from outside India in foreign currency. Largely because the cost of debt is much lower. However the only difference between a normal debt and FCCB is that here the investor gets an option to convert his debt into equity at a predetermined price. Depending on the price of the share at the conversion point and the potential to give returns it may decide to exercise or not exercise the option. In light of this lets look at what has happened in the board meetings held on 7th November 2009 and 14th November 2009 where FCCBs were converted into equity.
Outcome of board meeting on 7th November 2009.
Name of the Allottee : Apollo Asia Opportunity Alpha (Mauritius) Ltd
- Number of Shares allotted : 2,36,263
- Series of FCCB : B
- Value of FCCB converted : USD 1,000,000
- Conversion Price per share : Rs 190.00
Outcome of board meeting on 14th November 2009.
1.Name of Allottees : JP Morgan Mauritius Holdings Ltd.
- number of Shares allotted : 8,63,269
- Series of FCCB : A
- Value of FCCB converted (in US$) : 4,000,000
- Conversion Price per Share (in Rs.) : 208.00
2. Name of Allottees : Goldman Sachs Investments (Mauritius) I Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
3. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
4. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 3,54,394
- Series of FCCB : B
- Value of FCCB converted (in US$) : 1,500,000
- Conversion Price per Share (in Rs.) : 190.00.
So what has happened is that approximately Rs 32.77 crores of debt has been converted into equity at an average price of about Rs 200. It has also increased the number of equity shares by about 16 lacs.
Now its worthwhile pondering as to why these FIIs have decided to convert there debt into equity at a hefty premium of more than 100% to the current market price. In light of the discussion above I guess you should be in a position to take a decision. An informed decision.
Sakthi sugar remains a strong buy.
Happy investing
