Sources Of Foreign Capital
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- Words: 744
- Pages: 23
Kalyan Teja Nimushakavi
FDI
Foreign Currency
FII
Loans
ADR/GDR
ECB FCCB
•
History – 1927
•
What are DRs ?
•
Why DR s?
•
Mechanisms
•
DR s are US Negotiable Securities issued by a depositary bank that represent the ownership of certain underlying shares of a non US Company.
•
DR Programs allow the non US companies to get their shares listed and traded in the US market. Some structures allow them to raise capital even.
•
For Company
•
For Investors
Overseas capital markets’ access
To Diversify their portfolio
Enhances visibility
Transactions in local currency
Increased liquidity
Information easily available
Fair Valuation Mergers & Acquisitions Privatization
•
DRs are frequently identified by the markets in which they are available or the rules and regulations associated with the structure. • ADRs – Traded in US markets • GDR s – Typically traded in one or more markets • EDR s – Traded in Euro markets
OTC Market
OTC Market
Exchange Listed
Capital Raising
Privately Placed
1. Purchase request 2. Contact to purchase 3. Shares Purchase 4. Depositing Shares 5. Confirmation 6. Issue of DR s 7. Transfer of DR s
Agreement
Issuer Company
Underlying Shares
Local Custodian
Dividends
Money Depositary Bank
Money
Listing Requirements DR s Dividends
Foreign Investors
Foreign Stock Exchange
DTC/EuroClear / Clear sream
Sale of DRs:
Intra market trading
Cancellation (Cross border trading) 1. Cancellation Request 2. Surrender DR s 3. Confirmation 4. Release of Shares into home market
•
Due to the mechanisms involved , DR s are prone to following risks Inflation Risks of the respective countries Exchange Rate risks Political risks Finally Performance of the company
ADR
GDR
•
Higher Valuation
•
Lower Valuation
•
Higher participation
•
Lower participation
•
Wide research Coverage
•
Limited research coverage
•
More processing time i.e. 5-6
•
Less processing time
months
•
Relaxed requirements
•
Stringent regulatory requirements
•
IAS
•
US GAAP
•
Relatively Lower costs
•
Higher Costs associated
•
Foreign currency loans are given by the domestic banks to Corporates.
•
These loans are given from the deposits of the Foreign currency accounts Non Resident Indians.
•
However Credit rating of the company plays an important role
•
Terms differ for different banks in terms of requirements
•
These funds are primarily available to Export Oriented Units (Project Financing) Importing companies (Payments) Pubic Sector Units (For purchase of capital goods)
•
Relatively Cheaper Funds
•
Lesser Processing time
•
Funds can be used for following: Working Capital Management (3-18 Months) Project Financing New Capacity augmentation – Capital goods Importers for meeting import obligations
•
End Use Restrictions: Investment in Capital Markets Investment in Real Estate Sector
•
Indian companies/entities other than individuals, trusts and non‐profit making organisations can raise money from abroad
•
These include buyer’s credit, bank loans, securities issued, credits from official export credit agencies
•
These funds are made available by foreign banks, financial institutions abroad like IMF, World Bank, UBS, ADB etc.
•
The regulations are subject to change from time to time
•
There is a cap on the total amount that can be taken in a year through the route of ECB s
•
Generally three years of good financial performance and prudent debt management are prerequisites for ECB
•
ECB s - approved by RBI.
•
Usage Specifications: Raised only for Investment (Capital Goods, Capacity augmentation) Permitted for Overseas Acquisitions (JVs or Subsidiaries) Permitted for acquisition of shares in PSUs (Disinvestment)
•
Restrictions: Investment in Capital Markets Investment in Real Estate Sector On Lending of funds Domestic Companies Takeover
•
Quasi Debt instrument with an option of conversion
•
All the transactions happen in currency other than the local currency Receipts from issue of FCCB Coupon Payments Redemption
•
Advantages of both debt and equity instrument
•
Companies issuing FCCB s need to hedge (Till maturity period)
•
FCCBs are generally of two types
•
Due to the option of conversion, Associated with low Coupon rates (30-40 % lesser) Associated with Premium offerings (30-70 % higher)
•
Availability of Zero Coupon Bonds
•
Redemption based on future expected cash flows
•
Intention of conversion both from lender and issuer
•
Approvals
•
Processing time
•
Ease of availability
•
Purpose of borrowing
FDI
Foreign Currency
FII
Loans
ADR/GDR
ECB FCCB
•
History – 1927
•
What are DRs ?
•
Why DR s?
•
Mechanisms
•
DR s are US Negotiable Securities issued by a depositary bank that represent the ownership of certain underlying shares of a non US Company.
•
DR Programs allow the non US companies to get their shares listed and traded in the US market. Some structures allow them to raise capital even.
•
For Company
•
For Investors
Overseas capital markets’ access
To Diversify their portfolio
Enhances visibility
Transactions in local currency
Increased liquidity
Information easily available
Fair Valuation Mergers & Acquisitions Privatization
•
DRs are frequently identified by the markets in which they are available or the rules and regulations associated with the structure. • ADRs – Traded in US markets • GDR s – Typically traded in one or more markets • EDR s – Traded in Euro markets
OTC Market
OTC Market
Exchange Listed
Capital Raising
Privately Placed
1. Purchase request 2. Contact to purchase 3. Shares Purchase 4. Depositing Shares 5. Confirmation 6. Issue of DR s 7. Transfer of DR s
Agreement
Issuer Company
Underlying Shares
Local Custodian
Dividends
Money Depositary Bank
Money
Listing Requirements DR s Dividends
Foreign Investors
Foreign Stock Exchange
DTC/EuroClear / Clear sream
Sale of DRs:
Intra market trading
Cancellation (Cross border trading) 1. Cancellation Request 2. Surrender DR s 3. Confirmation 4. Release of Shares into home market
•
Due to the mechanisms involved , DR s are prone to following risks Inflation Risks of the respective countries Exchange Rate risks Political risks Finally Performance of the company
ADR
GDR
•
Higher Valuation
•
Lower Valuation
•
Higher participation
•
Lower participation
•
Wide research Coverage
•
Limited research coverage
•
More processing time i.e. 5-6
•
Less processing time
months
•
Relaxed requirements
•
Stringent regulatory requirements
•
IAS
•
US GAAP
•
Relatively Lower costs
•
Higher Costs associated
•
Foreign currency loans are given by the domestic banks to Corporates.
•
These loans are given from the deposits of the Foreign currency accounts Non Resident Indians.
•
However Credit rating of the company plays an important role
•
Terms differ for different banks in terms of requirements
•
These funds are primarily available to Export Oriented Units (Project Financing) Importing companies (Payments) Pubic Sector Units (For purchase of capital goods)
•
Relatively Cheaper Funds
•
Lesser Processing time
•
Funds can be used for following: Working Capital Management (3-18 Months) Project Financing New Capacity augmentation – Capital goods Importers for meeting import obligations
•
End Use Restrictions: Investment in Capital Markets Investment in Real Estate Sector
•
Indian companies/entities other than individuals, trusts and non‐profit making organisations can raise money from abroad
•
These include buyer’s credit, bank loans, securities issued, credits from official export credit agencies
•
These funds are made available by foreign banks, financial institutions abroad like IMF, World Bank, UBS, ADB etc.
•
The regulations are subject to change from time to time
•
There is a cap on the total amount that can be taken in a year through the route of ECB s
•
Generally three years of good financial performance and prudent debt management are prerequisites for ECB
•
ECB s - approved by RBI.
•
Usage Specifications: Raised only for Investment (Capital Goods, Capacity augmentation) Permitted for Overseas Acquisitions (JVs or Subsidiaries) Permitted for acquisition of shares in PSUs (Disinvestment)
•
Restrictions: Investment in Capital Markets Investment in Real Estate Sector On Lending of funds Domestic Companies Takeover
•
Quasi Debt instrument with an option of conversion
•
All the transactions happen in currency other than the local currency Receipts from issue of FCCB Coupon Payments Redemption
•
Advantages of both debt and equity instrument
•
Companies issuing FCCB s need to hedge (Till maturity period)
•
FCCBs are generally of two types
•
Due to the option of conversion, Associated with low Coupon rates (30-40 % lesser) Associated with Premium offerings (30-70 % higher)
•
Availability of Zero Coupon Bonds
•
Redemption based on future expected cash flows
•
Intention of conversion both from lender and issuer
•
Approvals
•
Processing time
•
Ease of availability
•
Purpose of borrowing
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