23 December 2011
The Melodrama of the Rupee
Wilde's humorous intentions notwithstanding, the rupee is now providing the world with some melodrama. As Shubha Ganesh of The Economic Times wrote last weekend, rupee depreciation has become a pressing concern of the government there "as a weak currency is expected to impact the domestic treasury as India meets 80 percent of its energy needs with imports."
Private companies in India, notably Reliance Communications (RCOM) a huge telecomm concern, have a lot of bonds reaching maturity in 2012, many of them foreign currency convertible. As another story this week in The Economic Times noted, "the timing could hardly look any worse."
A company that has issued, say, $1 billion in FCCBs is committed to pay the rupee equivalent of $1 billion US dollars when the bonds reach maturity. That is surely a key reason why the bondholders bought that sort of bond, why they've proven so easily marketable, after all: FCCBs let the buyers hedge themselves against any melodramatic fall of the rupee at the expense of the issuer.
If a major Indian company could find itself incapable of meeting those obligations -- well, we are all familiar with the ways of corporate metaphorical dominoes these days.
Yes, Cecily, this could get a bit too sensational.
Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.