Sources Of Funding For Mnc’s

International Financial Markets & Sources of funding for MNC’s

Discussion Plan Types of Exposures Sources of Long Term Funds Sources of Short Term Funds and Cash Management in MNC’s

International Financial Environment International Monetary Fund

International Monetary System Foreign Exchange Market

MNC’s Financial Intermediaries

International Banks

Euro Money Market

International Capital markets International Financial Institutions

Euro Money Market Euro Currency Euro Deposits Euro Loans 

Loan syndication

Euro Banking 

Euro Banking and Central Banks

International Capital Markets International Bond Market Foreign Bonds •Yankee Bonds •Samurai Bonds •Bulldog Bonds

International Equity Market Euro Bonds

Foreign Equity

•Euro/Dollar •Euro/Yen •Euro/Pounds

ADR

Euro Bonds

GDR

International Bond Market Foreign Bonds Vs Euro Bonds International Debt Instruments        

Straight Euro Bonds Convertible Euro Bonds Bonds with warrants Currency cocktail Yankee Bonds Samurai Bonds Floating Rate Notes (FRN) Bulldog Bonds

International Equity Market

GDR ADR EDR Portfolio Investment vs FDI

Shares

Depository

Custodian

Luxemburg Stock Exchange

GDR’s

Company

Lead managers & Syndicate GDR’s Investors

Mechanism of GDR’s

GDR’s

Shares

Depository Depository Agreement

Custodian

Indian Legal Counsel

English Legal Counsel Luxemborg listing Agent

GDR’s

Listing Agreement PR consultant

Company

Auditor

Subscription Agreement

English Legal Counsel

Lead managers & Syndicate

Luxemborg Stock Exchange

Investors

Mechanism of GDR’s

Indian Legal Counsel

Euro clear Cedel & DTC

GDR’s Pre Issue Week 0-4 Week 5-7 Week 8 Week 9 Week 10

Discuss Strategy, Obtain legal advice, prepare tentative plan of issue Nominate Lead Manager, co managers, depository, bankers etc. Meetings between LM, auditors, legal advisors, preparation of official circular LM completes & sends preliminary offer offer document to co-managers & underwriters. Road shows and investor meets Launch & syndication by LM, foreign listing, trading approval etc.

GDR’s Advantages 

Easy access to foreign capital markets



Lower leverage and reduces interest rate burden No Cash redemption Free of foreign exchange risk Stabilisation effect from enhancing trading facility

  

Disadvantages   

Immediate EPS dilution Dividends not tax deductible No downside protection for investors

FCCB’s Advantages    

Sell Shares at Premium No immediate EPS dilution Appeals to defensive investor No bond repayment if converted

Disadvantages   

Increase leverage Increase interest burden Foreign exchange risk

External Commercial Borrowings (ECB’s) Automatic Route Approval Route

Working Capital Management in MNC’s INTERNATIONAL CASH MGMT ACCOUNTS RECEIVABLE MGMT INVENTORY MANAGEMENT SHORT-TERM FINANCING

Working Capital Management in MNC’s Objective of Cash Management in MNCTo maximize return by proper allocation of short term investments  To minimize cost of borrowing by accessing different money markets 

INTERNATIONAL CASH MGMT Key Areas: 1. Organization 2. Collection/Fund Disbursement 3. Interaffiliate Payments Netting 4. Excess-Funds Investment 5. Optimal Global Cash Balances 6. Cash Planning/Budgeting 7. Bank Relations

Centralised Vs Decentralised CM Advantages – Efficient liquidity levels Enhanced profitability Quicker headquarter action Decision making enhanced Better volume currency quotes Greater cash management expertise Less political risk

Centralised Vs Decentralised CM Disadvantages – Complete centralization is practically impossible Local problems in dealing with customers Conflict of interest among parent and subsidiary

Techniques to optimise cash flows Accelerating cash inflows Managing blocked funds Leading and Lagging Netting Transfer Pricing Investing excess cash

Netting Offset payments of affiliate receivables/ payables so that net amounts only are transferred Bi lateral Netting Multilateral Netting

Transfer Pricing ChinaChina

4m$

1.75 m $ 1m$ 3.5 m $

6m$

India India

UK

UK

2m$ 2m$

1m$ Parent Parent USA USA

5.25m $

Sources of short term funds Trade Credit Pre Shipment  Post Shipment 

Bill Discounting Export Financing