SOURCES OF RAISING FUNDS IN

INTERNATIONAL MARKETS

By:MEGHA KUSHWAHA

SOURCES

EURO ISSUE

DEPOSITORY RECEIPTS

AMERICAN DEPOSITORY

RECEIPTS

GLOBAL DEPOSITORY

RECEIPTS

FOREIGN CURRENCY CONVERTIBLE BONDS

DEPOSITORY RECEIPT

• It is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities.

• Through it, companies in India tap the global equity market to raise foreign currency funds by way of equity

• When the depository bank is in the U.S., the instruments are known as American Depository Receipts (ADRs). European banks issue European depository receipts(EDRs), and other banks issue global depository receipts (GDRs).

AMERICAN DEPOSITORY RECEIPT (ADR)

• It is a negotiable security representing securities of a non-US company trading in the US financial markets

• It is denominated in US dollars and may be traded like regular shares of stock

• Securities of a foreign company that are represented by an ADR are called American depository Shares(ADSs)

• INFOSYS Technologies Ltd was the first Indian company to issue ADRs

TYPES OF ADR

SPONSORED

• Issued with cooperation of company whose stock will underlie the ADR

• Listing on international Stock Exchange is allowed

UNSPONSORED

• Issued by broker, dealer or depository bank without the involvement of company whose stock underlie ADR

• Trade in OTC market

ADR RATIOS

SINGLE •1 ADR = 1 SHARE•ADR Ratio = 1:1

MULTIPLE •1 ADR = 5 SHARES•ADR Ratio = 1:5

FRACTION

•1 ADR = ½ SHARE•ADR Ratio = 2:1

LIST OF ADRs ISSUED BY INDIAN COMPANIES

GLOBAL DEPOSITORY RECEIPT (GDR)

• It is issued by one country’s bank as negotiable certificate and is traded on the stock exchange of another country against a certain number of shares held in its custody

• It is denominated in some freely convertible currency• GDRs are often listed in Luxembourg, London,

Frankfurt, Singapore and Dubai Stock Exchange• Reliance Industries was the first Indian company to

issue GDRs

LIST OF GDRs ISSUED BY INDIAN COMPANIES

ISSUE MECHANISM OF ADR/GDR

ISSUING COMPANY(DR. REDDY)

DOMESTIC CUSTODIAN BANK

(SBI)

OVERSEAS DEPOSITORY BANK

(MORGAN STANLEY)

OVERSEAS STOCK EXCHANGE

(NYSE)

OVERSEAS INVESTOR CLEARING HOUSE(DTC,EURO CLEAR)

UNDERLYING SHARES

ISSUE OF DR

DIVIDEND

PAYEMENT

ADVANTAGES OF ADR/GDR

From INVESTORS’

point of view

•Helps to invest in foreign companies•Two way fungibility•More transparency and stability

From ISSUERS’ point of view

•Broaden and diversify a company’s investor base•Enhance company’s visibility, status and profile internationally among investors.•DR holders do not have any voting right

FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB)

• They are debt instruments issued in a currency different than the issuer’s domestic currency with an option to convert them in common shares of the issuer company

• The interest on FCCBs is generally 30% -40% less than on normal debt paper or foreign currency loans

• Maturity period of FCCB is 5 years but there is no restriction on time period for converting FCCB into shares

ADVANTAGES OF FCCB

From INVESTORS’

point of view

•Redeemable at maturity if not converted•Can take advantage of any large price appreciation in the company’s stock

From ISSUERS’ point of

view

•It is a low cost debt instrument•Conversion of bonds into stocks take place at a premium to market price

PROBLEMS ASSOCIATED WITH RAISING OF FUNDS IN INTERNATIONAL MAKETS

Foreign exchange risk i.e. currency of issuer is different from currency of DR

Only Fixed issues are allowed

Issue can not be more than 51% of the subscribed capital

Country specific risk

INDIAN DEPOSITORY RECEIPT (IDR)

• It is issued and traded in a similar manner as that ADR and GDR

• A foreign company lists its shares in Indian domestic market in INR terms while the underlying shares are listed and traded in any foreign exchange

• Till date only Standard Chartered Bank has issued IDRs. 10 IDRs represent one share of Standard Chartered PLC’s share listed in London Stock Exchange.

THANK YOU