The route has been opted, by one of the leading cement manufacturers in India, Gujarat Ambuja, which floated a credit enhanced $90 million FCCB issue after a spell of three years, since the FCCB issue of IndianPetrochemical Corporation Ltd in 1996.

According to lead arrangers Morgan Stanley Dean Witter (MSDW), this has opened up the Indian market as a lucrative option for investors abroad. This primarily means the credit risk attached to India and other Asian markets by the developed economies, that had pushed such instruments to dormancy for the last three years, will not be of serious concern.

Gujarat Ambuja's FCCB issue was a five year deal, with one per cent coupon, 28 per cent conversion premium, into either local stock or GDRs, and three year hard no call and is thus unconditional.

This was followed by another similar deal, lead arranged by MSDW on behalf of Samsung Electronics, whereby the Korean major came out with the offering of convertible bonds worth $200 million. The convertible bonds carried a tenor of three and quarter year, with a coupon of two per cent and yield to maturity of five per cent.

According to MSDW, both the issues of Gujarat Ambuja and Samsung Electronics have been well percieved by the investors abroad and there was heavy over - subscription. In both cases, besides the competitive pricing and the distribution strength of the merchant banker, the company fundamentals also played a great role. According to merchant bankers, this instrument is very well perceived among the investors, as both downside and upside of theinvestment is protected. To be precise, in the worst conditions the investor gets back the return in the form of the prescribed coupon rate, whereasif the economy does well and so does the company, the investorcan convert the bonds into equity and thus enhancing the intrinsic value of the investment.

However, some section of merchant bankers hold a different view. According to a senior official in SBI merchant banking, loan route is any day a much better option for corporates than bonds, as it leaves the client with the option of refinancing. Thus, one can take advantage of the existing marketconditions and ruling interest rates.

On the other hand, according to Dr KC Chakrabarty, general manager (treasury) Bank of Baroda, FCCB as an instrument is good, provided the corporates have substantial foreign currency earnings to hedge the exposure.

Moreover, in the existing global scenario with fast flow of information, changes in one part are swiftly factored in another economy. Therefore, the advantages as regards the interest rate differential is not quite substantial. However, there is a consensus on one point that the market for such bonds has rejuvenated, as merchant bankers are flooded with queries from corporates.