RAISING FUNDS FROM OFF SHORE SOURCES. Off shore sources funds Domestic financial system – helps...
-
Upload
susan-anderson -
Category
Documents
-
view
218 -
download
1
Transcript of RAISING FUNDS FROM OFF SHORE SOURCES. Off shore sources funds Domestic financial system – helps...
Off shore sources fundsOff shore sources fundsDomestic financial system –
helps raise finance from domestic funds
International financial markets transfer funds across countries
Main sources are - Eurocurrency loans- Euro bonds - ADRs & GDRs
Eurocurrency LoansEurocurrency LoansIs freely convertible currency
deposited outside the country of origin
These loans are of high volume & are usually syndicated by more than bank.
Loans are on basis of floating rate of interest ie LIBOR + floating rate of interest
Can be borrowed in a variety of currencies & can be repaid in similar currencies
Euro bonds & Foreign Euro bonds & Foreign bondsbondsAre sold outside
the country in whose currency they are denominated. Eg an Indian co issusing dollar bonds in Japan.
Eurodollar, euroyen etc
Foreign bond is denominated in the currency of country where issued. Eg Indian co issuing dollar bonds in US.
Euro Convertible Euro Convertible Bonds/Foreign Currency Bonds/Foreign Currency Convertible BondsConvertible BondsUnsecured Debt.Sold in any freely convertible
currency.Carry a fixed rate of interest
(single digit coupon)Option to convert into a fixed
number of Equity Shares: upon conversion becomes GDR’s and then equity if desired.
Interest and redemption (when not converted) in convertible currency.
Depositary ReceiptsDepositary ReceiptsDifficult for co’s from developed countries
to raise equity funds from developed countries due to strict disclosure norms
Is an indirect method of raising funds thro equity route
Is the no of equity shares deposited with a foreign bank
ADR in American market & GDR in UK market
An Indian company issues a no of shares to a FI in the foreign country called depositary. This bundles the shares and sells the same as DR
DomesticCustodian bank
InvestmentBanker
(overseas depository
Bank) issuerOf ADR/
GDR
1.Public2.Private
3.Number of ADR/GDR
4.Issue price5.Rate of Interest
6.conversionPrice
7.coupon Rate
Pricing of conversion
option
Issu’g
Co
For EgFor EgNagarjuna Company wants to issue 10
lakh ADRsof face value Rs 10. And conversion
rate is 1 INR=$ 50.
The company is raising Rs 1 crore.As 1INR=$ 50, the company will issue 5
equity shares as 1 ADR
Who can issueWho can issueAn Indian co meeting eligibility
norms for IPONot barred by SEBIUnlisted co cannot unless
simultaneous ipo proposedShall appoint eligible intermediariesConsistent track record for 3 yearsRegulations of FDI fulfilledIntermediaries should be registered
in that country
Legal frameworkLegal frameworkApprovals from Ministry of
Finance, Ministry of Corporate Affairs, RBI, Stock Exchanges, Financial Institutions, Board of Directors, shareholders
Regarding quantum of issue, country, time etc
IntermediariesIntermediariesLead mgrCo lead mgrOverseas depositary bankDomestic custodian bankPrintersLegalUnderwritersListing agentsAuditorsProcess of issue the same
Advantages of ADR/GDRAdvantages of ADR/GDRCan be listed on any of the
overseas stock exchanges/OTC/Book entry transfer system
Freely transferable by non residentThey can be redeemed by ODBThe ODB should request DCB to
get the corresponding underlying shares released in favour of non resident investors.(Share holder of issuing company)
Company’s point of viewCompany’s point of viewEnhancement of corporate image of
the company.A host of foreign fund managers are
speculating on how best to cash in on the appetite for Indian shares.
Prepayment of foreign currency and rupee loans facilitated.
Low cost of issuance(4 to 5%) of the issue size.
Company not concerned with foreign exchange rate fluctuations as these are to the account of the investor
Advantages of FCCB/ECBAdvantages of FCCB/ECBLow interest rateFixed interestUnsecuredOption to convert into fixed no of
sharesNo voting rights
Disadvantages of FCCBsDisadvantages of FCCBsLimit on deployment of fundsNo projection of cap structureNo projection of cash flows
Advantages and Advantages and Disadvantages of Key Disadvantages of Key Financing AlternativesFinancing AlternativesIdeal situation to issue
ADR’s
Large current and future needs involved in International Industries.
GDR’s
Specialized Regional base.Not a frequent visitor to International Capital Markets.
ECB’s
Fast-rising priceTremendous Growth prospects in near future
Advantages
Ideal situation to issue
ADR’s
Large current and future needs involved in International Industries.
GDR’s
Specialized Regional base.Not a frequent visitor to International Capital Markets.
ECB’s
Fast-rising priceTremendous Growth prospects in near future
DisadvExtensive timing, disclosure & On- going filling requirementsRecognition with US GAAPHigher issuancecost
More limited investor UniverseMore limited liquidityModerate valuationSome timing and disclosure needs increase debt- equity ratio
Limits access to US capital markets if not $ denominated or US registeredLowest level of liquidity after conversion
ADR GDR ecb
Advantages•Broad investor and distribution
•Pricing premium and prestige
•Best liquidity and research coverage•More stable after market performance•Maximum flexibility in accessing various equity and debt markets postoffering
•No US SEC disclosure requirements and liability issues with ADRs•Can be executed more quickly and easily than ADRs•Can be executed more quickly and easily than ADRs
• Lower issuance cost than ADRs
Sell equity at premium
•Incremental investor base
Minimizes dilution
•Shortest timing schedule
Lowest issuance cost