Why do Emerging Market Firms Issue Offshore Dollar Equity Linked Securities?

While depository receipts have attracted much scholarly attention, there is little research on the consequences of issuing foreign currency convertible bonds that account for a large fraction of issuance in global capital markets. We bridge this gap by examining FCCB issuance by Indian firms amounting to $22 billion during 2000-2017. We find that FCCBs could be delayed equity or cheap debt or relax capital constraints. However, issuers experience an increase in default probabilities, a rating downgrade and a deterioration in operating and stock performance. In line with this analysis, stock markets react negatively to the issuance of offshore convertibles.