Overseas sources of finance for Indian Corporates

1. 01 Overseas Sources of Finance
for Indian Corporates
Ashwathy Nair
MBA -Banking & Finance
AMITY UNIVERSITY

2. Agenda
Executive Summary - 03
Different Sources - 05
Equity - 06,07
Debt - FX - 08,09
Debt - INX - 10
Foreign currency loans - 11
02
AMITYUNIVERSITY|2020

3. Executive
Summary
Indian companies are
increasingly tapping
foreign capital to fund
their ambitious growth
plans. Also, raising
finance from abroad is
now more economical as
interest rates are
lower in international
markets.
Progress
For instance, a few years
ago, the interest rate
charged by a domestic bank
for a loan for an
infrastructure project was
more than 10%, while the
Libor (London Inter Bank
Offer Rate) was at 4%.
Hence, a number of projects
became financially viable
due to the savings in terms
of interest cost.
Key achievements
03

4. International
Capital Markets 04
International
Bond market
International
Equity market
Foreign Bonds
Bulldog Bonds
Yankee Bonds
Samurai Bonds
Euro/Dollar
Euro/Yen
Euro/Pounds
Foreign Equity
ADR
GDR
Euro Bonds Euro Bonds

5. ADR - American
Depository
Receipts.
GDR - Global
Depository
Receipts
EQUITY
Different
Sources
Yankee
Samurai
DEBT - FX
Masala bonds
DEBT - INX
External commercial
borrowing
FOREIGN CURRENCY
LOANS
05

6. American Depository Receipts (ADRs) are a way of trading non-U.S. stocks on the U.S. exchange.Through ADRs,
Indian companies who are willing to raise funds from the U.S. can do so by issuing shares on American Stock
exchange.
However,the issuance of ADR is governed by the rules and regulations as laid down by the regulator SEC (Securities
and Exchange Commission). The Indian Companies will have to maintain accounts as per the American Standards.
The Indian companies cannot directly list their equity shares on the international stock exchange. So in order to
overcome this problem; the companies give shares to an American bank. These American banks in return for those
shares provide receipts to the Indian companies.The companies raise funds by providing those ADR receipts in
American share market.
ADR – American
Depository Receipts
06

7. GDRs are similar to ADRs except the fact that it is
listed on an exchange outside the U.S. and helps the
issuer to raise funds simultaneously in different
markets i.e. it allows the foreign firms to trade on the
exchange outside its home country.
These shares are held by a foreign bank who provides
depository receipts to these companies in return for
the shares.
·
GDR – Global Depository
Receipts
07

8. A Yankee bond is a debt obligation denominated in U.S. dollars
that is publicly issued in the U.S. by foreign banks and
corporation, and sometimes even governments.
Yankee bonds are subject to U.S. securities laws, as they trade on
U.S.exchanges.
Yankee bonds offer the issuer to chance to get cheaper financing
and reach a broader investment audience; they offer investors
the chance for better yields.
On the downside, Yankee bonds can take a long time to come to
market, subjecting them to interest rate risk; they are also
vulnerable to currency risk and other problems in their home
country's economy.
Yankee Bonds
08

9. Samurai bonds are issued in Japan by foreign companies,
denominated in yen, and subject to Japanese regulations.
Companies might issue bonds in yen to capitalize on low
Japanese interest rates, or to gain exposure to Japanese
markets and investors.
Risks associated with raising capital in Japanese yen can
often be mitigated with cross-currency swaps and
currency forwards.
Shogun bonds, like Samurai bonds, are bonds issued in
Japan by foreign firms, but unlike Samurai bonds. are
denominated in non-yen currencies.
·
Samurai Bonds 09

10. Masala Bonds were introduced in India in 2014 by International Finance Corporation (IFC). The
IFC issued the first masala bonds in India to fund infrastructure projects. Indian entities or
companies issue masala bonds outside India to raise money. The issue of these bonds is in Indian
currency rather than local currency. Thus, if the rupee rate falls, the investor will bear the loss.
Masala Bonds are rupee-denominated bonds issued outside India by Indian entities. They are
debt instruments which help to raise money in local currency from foreign investors. Both the
government and private entities can issue these bonds. Investors outside India who would like
to invest in assets in India can subscribe to these bonds.
According to RBI, the maturity period is three years for the bonds raised to the rupee
equivalent of 50 million dollars in a financial year. The maturity period is five years for the bonds
raised above the rupee equivalent of 50 million dollars in a financial year. The conversion of
these bonds happen at market rate on the date of settlement of transactions undertaken for
issue and servicing of interest of the bonds.
Masala Bonds 10

11. External Commercial Borrowings (ECB) refers to the debt shouldered by an eligible entity in
India for solely commercial purposes, that has been extended by external sources, i.e. from
any recognized entity outside India. These borrowings are expected to conform to norms
and conditions put forth by the RBI.
ECBs have proven to be instruments that greatly aid Indian firms and organizations in their
efforts to raise funds from beyond India's borders, especially with regard to bringing in
fresh investments. One might recognize that structures similar to ECBs include those of
Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Exchangeable Bonds
(FCEBs). It is vital to note that while the main purpose underlying the issuance of FCCBs is
the raising of capital, ECBs are more expansively applicable; within the latter's ambit lies
commercial loans that can include securitized instruments, bank loans, suppliers' credit,
buyers' credit, and bonds. The minimum maturity period of the aforementioned instruments
is, on average, three years.
Given that the RBI now permits ECB proceeds to see through the repayment of loans, the
Indian GDP is expected to maintain stability; at the same time, Indian corporations have
been afforded grand leeway to seek much-required funds from the overseas market with
refreshingly modest interest rates.
External Commercial
Borrowings 11

12. Ashwathy Nair
MBA - Banking & Finance
Thankyou:)