Unit-IV
INTERNATIONAL ASPECTS RAISING CAPITAL
1) Euro equity issue.
2) International bond financing
3) Dividend policy of MNC.
4) Taxation of Govt / treaties.
5) Country risk
6) Cost of long term financing
7) Risk of long term financing
8) Which market segmented or integrated
9) Cheek legislation / policy of Govt
10) Check information availability
11) Check availability of currency / or liquidity / size of market
12) Whether SBU or parent
13) Exchange rate factor
14) Issue bond / where you are well known
Or / share
1

STRATEGIC CONSIDERATION IN EURO EQUTY ISSUE
1) In which country
a) Where best price
b) Less issue cost
c) Money should be available
We should issue euro equity there
2) In which currency we should issue
3) Select under writer
4) Subscription should be adequate / full or over subscription
5) How to distribute euro equity
6) How much cost of raising equity
7) How much should transaction cost
8) In which country you are issuing euro equity there should be your
organization known properly
9) Risk factor should be minimum
10) Size of market should be enough
11) Exchange rate factor should be considered
12) Tax factor should be considered
13) Check treaties between countries
14) Whether SBU or parent should raise equity
15) Check efficiency of market
16) Check information availability
17) Check policy of Govt
18) Check legislation
19) Segment / integrated market
20) ADR / GDR / IDR
2

INTERNATIONAL BOND FINANCING
1) Currency selection
2) Country selection
3) Instrument selection – kind of bond
4) Whether parent of SBU’ issue bond
5) Tax consideration
6) Risk factor
7) Economic factor
8) Legal factor
9) Foreign bond or euro bond
10) Check foreign exchange factor
11) Issue cost
12) Issue size
13) Check information availability
14) Interest payment terms.
3

DETERMING FINANCIAL STRUCTURE OF
SUBSIDERY OF AN MNC
.
- How much debt
- How much equity
It is based on following points
 Economic / political points of both debt & equity
 Adopt such financial structure which is beneficial for local
circumstance
 Whether parent decidable structure or SBU decide structure (default
effect on parent taken into consideration)
 Legal factor of responsibility of parents for Default of SBU
 Parent must monitor debt / equity ratio
 Availability of local debt or equity on cheap rate
 Tax consideration (tax shaved on interred paid)
 Varies country to country
 Agency cost
 Which is easy payment dividend or interest
 Interest payment is obligation dividend not
 Risk factor - High debt / equity ration
 Whether bank supporting both (debt & equity)
 Cost of bebt and equity should be minimum
 Check profit level
 Political risk consideration –High risk –high debt
-Low risk – low debt
 Exchange control: - High control-high debt
-Low control – low debt
 Remittance problem – High problem – high debt
-Low problem –low debt
 (Short term / cong term debt & Equity) Availability
4

FINANCIAL CHOILE
1) Which currency-$ / pond / etc
2) Which country- UK / US / Japan etc
3) Which instrument – debt /equity-ADR or GDR etc.
4) Which should bear the cost MNC or SBU etc
5) Tax consideration
6) Timing of issue
7) Size of issue
8) Cost of issue
9) From where to take information
10) Exchange rate factor
11) Risk factor
5

COST OF FINANCING
- Commission
- Reimbursement to manager
- Lead manager’s legal advisor fee
- Issuer legal advisor fee
- CPA (fee)
- Printing of document & securities
- Listing fee
- Road show & others
- Annual expenses
- Interest payment
- Dividend payment
- Trust fee
- Paying agent fee
- Redemption fee
- Conversion fee
- Depositing fee
6

COUNTRY RISK ANALYSIS (RISK OF FINANCING)
-MACRO:- Expropriation with compensation
Nationalization package giver
Take over
Confiscation without compensation
Regulation strict
Inter face with operation: -create problem in operation
Social problem
-MICRO:- Goal conflicts with economic policy
- Monetary
- Fiscal
- Trade
- Bop problem Govt goal difference with SBU
- Development polices
- Corruption
- Burocratics
INDICATORS OF RISK
INDICATOR: -
- Stability of Govt
- Inflation
- Priorities of Govt / Govt control
- Attitude of Govt
- Low return
- War
- Tax
- Direction of polices
- Debt
7

DIVIDENT POLICY OF MNC
1) Check tax factor (treaties) “minimum tax”.
2) Financing requirements – Parent or sister concern or
SBU
3) Exchange control host govt
4) Local share holder consideration
5) Equity Vs debt
6) How much money to remit
7) When to remitt
8) Where to remitt
9) Which method of transfer
10) Attitude of govt
11) Transfer pricing
8

TAXATION OF MNC
1) Double taxation relief
- Bilateral relief
- Unilateral relief
2) Income tax act – 90 & 91 give double tax relief
- Income tax relief
3) Method of giving relief:
- Relief by credit
- Relief by refund
4) Models of treaties
- Double Tax convention (Un model)
- Organization of economic co-operation development
5) Type of agreement:
- Limited – income by ship etc
- Comprehensive – fee/ royalty
Tax consideration while collaboration
- Choose right country
- Tax] credit (double tax treaty).
- Dependent service (180 day no tax) 180 days after tax in
India
- Split up policy- (royalty/ fee/ tech services)
- Carefully read treaties
- Royalty definition
Provision for tax avoidances:-
- Strict action
- Loose action how much penalties
- Compromise
9