The document discusses various overseas sources of finance available to Indian corporations, including international equity markets like ADRs and GDRs, international bond markets like Yankee bonds and Samurai bonds, INR denominated bonds known as Masala bonds, and external commercial borrowings. It provides details on each of these financing options, such as what they are, how they work, their advantages and disadvantages. It also lists some examples of Indian companies that have utilized these overseas financing sources and the trends of issuances over time.

1. Sanika S
Yadav
Overseas Sources of
finance for Indian
Corporates

2. 2
Content
s
International Equity Market
ADR
GDR
International Bond Market
-Yankee Bonds -Samurai Bonds
INR Denominated Bonds
-Masala Bonds
External Comercial Borrowings
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Overseas sources of finance for Indian
Corporates
International
Capital Markets
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International
Equity Market
ADR
GDR
International Bond
Market
Foreign Bonds
Yankee Bonds
Samurai Bonds
INR Denominated
Bonds
Masala Bonds
International Loan
Market
External
Commercial
Borrowings

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1) International Equity
Market International fund raising used to be the domain of multinational
companies. MNCs not only source raw material across the world or sell
products at many geographical regions, they also scouting for capital all
over the world and raise capital where it is cheaper.
 However, with globalization and increased cross-border capital flows,
smaller companies are enjoying the benefits of raising capital in the
international market.
 Cross listing of shares through issuance of depository receipts have
become a common occurrence. Investors’ appetite for foreign company
shares have also increased manifold and internationalization of equity
market across globe is happening at a faster speed.
1. ADR- American Depository Receipts
o ADRs offer U.S. investors a way to purchase stock in overseas
companies that would not be available otherwise. Foreign firms also
benefit, as ADRs enable them to attract American investors and
capital without the hassle and expense of listing on U.S. stock
exchanges.
o To offer ADRs, a U.S. bank will purchase shares on a foreign
exchange. The bank will hold the stock as inventory and issue an
ADR for domestic trading. ADRs list on either the New York Stock
Exchange (NYSE) or the Nasdaq, but they are also sold over-the-
counter (OTC)
o American depositary receipts come in two basic categories:
Sponsore
d
 Sponsored ADRs are categorized by what
degree the foreign company complies
with
U.S. Securities and Exchange
Commission (SEC) regulations and
American accounting procedures. A bank
issues a sponsored ADR on behalf of the
foreign company. The bank and the
business enter into a legal arrangement.
Usually, the foreign company will pay the
costs of issuing an ADR and retaining
control over it, while the bank will handle
the transactions with investors.
Unsponsore
d
 A bank also issues an unsponsored ADR.
However, this certificate has no direct
involvement, participation or even
permission from the foreign company.
Theoretically, there could be several
unsponsored ADRs for the same foreign
company, issued by different U.S. banks.
These different offerings may also offer
varying dividends. With sponsored
programs, there is only one ADR, issued
by the bank working with the foreign
company.
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One primary difference between the two types of ADRs is:
where investors can buy them. All except the lowest level of sponsored
ADRs
register with the SEC and trade on major U.S. stock exchanges.
Unsponsored ADRs will trade only over-the-counter. Also, unsponsored
ADRs never include voting rights.
ADRs are additionally categorized into three levels, depending on the
extent to which the foreign company has accessed the U.S. markets:
Pros & Cons of
ADR
Level 1
This is the most basic
type of ADR where
foreign companies either
don't qualify or don't
want to have their ADR
listed on an exchange.
This type of ADR can be
used to establish a
trading presence but not
to raise capital. Level I
ADRs found only on the
over-the-
counter market have the
loosest requirements
from the Securities and
Exchange
Commission (SEC) – and
they are typically highly
speculative..
Level 2
As with Level I ADRs,
Level II ADRs can be
used to establish a
trading presence on a
stock exchange, and
they can’t be used to
raise capital. Level II
ADRs have slightly more
requirements from the
SEC than do Level I
ADRs, but they get
higher visibility and
trading volume.
Level 3
Level III ADRs are the
most prestigious. With
these, an issuer floats a
public offering of ADRs
on a U.S. exchange.
They can be used to
establish a substantial
trading presence in the
U.S. financial markets
and raise capital for the
foreign issuer. Issuers
are subject to full
reporting with the SEC.
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The Complete List of Indian ADRs trading on
the US Exchanges as of Oct 29, 2020 are
listed below
The Complete List of Indian ADRs trading on the
US OTC Markets as of Oct 29, 2020 are listed
below:
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2. GDR- Global Depository Receipts
o It is a type of bank certificate that represents shares in a foreign
company, such that a foreign branch of an international bank then
holds the shares. The shares themselves trade as domestic shares,
but, globally, various bank branches offer the shares for sale. Private
markets use GDRs to raise capital denominated in either U.S. dollars
or euros. When private markets attempt to obtain euros instead of
U.S. dollars,
GDRs are referred to as EDRs
o Investors trade GDRs in multiple markets, as they are considered to
be
negotiable certificates. Investors use capital markets to facilitate the
trade of long-term debt instruments and for the purpose of generating
capital. GDR transactions in the international market tend to have
lower associated costs than some other mechanisms that investors
use to trade in foreign securities.
3. The declining trend of ADR & GDR
 Many Indian corporates, too, have followed this route of tapping the global
market via global depository receipts (GDRs) and American depository
receipts (ADRs), since 1993. Issuing of ADRs by companies such as
Infosys in NASDAQ or VSNL in the New York Stock Exchange (NYSE) in
and around 1999 or 2000 had attracted widespread attention.
 Of course, not all the DRs were floated in NASDAQ or NYSE. In fact,
given the stringent listing in the American stock exchange, in terms of
both number and amount issued, the Luxembourg stock exchange
emerged as the most preferred destination for DRs issued by Indian
corporates.
 While the DRs seem to have played a definitive role with regard to
accentuating integration of the Indian financial markets with global

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 While international investors continue to look for global avenues for
portfolio diversification — something that the DRs issued by Indian
companies tapped into during the period preceding the global financial
crisis — the Indian corporations’ appetite for DR issuances seems to
have ebbed in more recent years. So much so, that no new ADRs or
GDRs were issued by Indian companies in 2016-17 and 2017-18 (see
Chart).
 Then, in 2018-19, ADR/GDR issuances rose to the tune of $1.8 billion.
What explains this sudden increase?
 As per data revealed by the Bank of New York Mellon global DR
directory, while no GDR/ADR has been issued by an Indian company in
any of the stock exchanges across the world in 2019, only three DRs
have been issued in 2018. These pertained to GDRs issued by Dish TV
and Tube Investments at the London Stock Exchange. Further, the 2018
GDR issues were outcome of corporate restructuring activities of these
firm
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Why is there a reluctance to issue ADR & GDR?
 Interestingly, the liberalised DR scheme that came into effect from
December 15, 2014, failed to rejuvenate the DR market.
 Two major reasons stand out. First, there was a nagging concern that
many GDRs could have been an outcome of conversion of unaccounted
money returning to India through a legal route. Thus, Indian regulators
were often cagey about these instruments. In fact, in 2017, SEBI seemed
to have barred 19 firms from the securities markets in India for
manipulation in issuances of GDR.
 Illustratively, in case of one aluminium company, it was found that that the
GDRs were subscribed by only one entity, by obtaining loan from a bank
Second, domestic Qualified Institutional Placements (QIPs) have also
emerged as a more convenient and cheaper mechanism to raise capital,
eating into the attractiveness of DRs.
 DRs have been in the news recently owing to the Finance Ministry’s
directive to SEBI to operationalise the DR scheme of 2014, and
subsequent circulars by SEBI dated October 10, 2019 and November 29,
2019 were issued. These circulars offer a framework for Indian
companies to issue DRs that are referenced to equity shares and debt
instruments that rank pari passu (on an equal footing) with those listed on
domestic stock exchanges.
 While the emergence of QIPs offers much-needed impetus to the
development of the domestic capital markets, such a development comes
with a concentration of risk.
 While DR issuances by Indian firms offer an avenue for international
investors to diversify risk in their investment portfolios, domestic
institutional investors in India are left with very few avenues (if any) to
mitigate home bias.

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2) International Bond Market
International bonds are bonds issued by a country or company that is not
domestic for the investor. The international bond market is quickly expanding as
companies continue to look for the cheapest way to borrow money. By issuing
debt on an international scale, a company can reach more investors. It also
potentially helps decrease regulatory constraints.
2.1 Yankee Bonds
A Yankee Bond is a bond issued by a foreign entity, such as a bank or
company, but is issued and traded in the United States and denominated
in U.S. dollars.
For instance, Company ABC is headquartered in France. If Company
ABC issues bonds in the United States that are denominated in U.S.
dollars, the bonds are Yankee bonds.
Yankee bonds are normally issued in tranches, a large debt structure
financing arrangement into a lot of portion, each portion have different
level of risk, interest rates and maturities, and the value of investment
grouping might be extremely high, as much as $1 billion.
U.S. investors buy Yankee bonds to branch out into overseas markets.
Yankee bonds are same with other bonds which will require the borrower
to pay a certain interest rate and principal amount according to the terms
of the indenture. Yankee Bonds are administered by the Securities Act of
1933
Yankee Bond issuance has dominated the foreign bonds issued by
Indian Companies. Around 6 Indian companies have issued Yankee
Bond. Reliance Industries Ltd. (RIL) is the first company to issue a
Yankee bond in 1996.
RIL’s second Yankee Bond issue in 1997 made news by being the first
company from India with successful flotation of $100 million 100-year
Yankee bond followed by a second issue of $214 MN for a period of 30
year.
Issuance of 100-year Yankee Bond created ripple in Indian economy

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Yankee Bonds issued by of Indian
Companies
Advantages of Yankee Bonds
Yankee bonds can represent a win-win opportunity for both issuers and
investors. One of the primary potential advantages for a Yankee bond
issuer is the opportunity to obtain cheaper financing capital at a lower
cost if comparable bond rates in the United States are significantly lower
than the current rates in a foreign company’s own country.
A major advantage for U.S. investors in Yankee bonds is such bonds
frequently offer higher yields than the yields available on comparable, or
even lower-rated, bond issues from U.S. issuers. Another potential
advantage is the fact that Yankee bonds offer investors a means of
obtaining international diversification in a portfolio of bond investments.
Disadvantages of Yankee Bonds
One of the drawbacks of Yankee bonds for issuers is the time involved.
Because of strict U.S. regulations for the issuing of such bonds, it can
take more than three months for a Yankee bond issue to be approved for
sale. The approval process includes an evaluation of the issuer’s
creditworthiness by a debt-rating agency such as Moody’s or Standard &
Poor’s.
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2.2 Samurai Bonds
 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.
Advantages of a Samurai Bond
Samurai bonds are denominated in Japanese yen. Thus, Samurai bonds
give a company or government an opportunity to expand into the
Japanese market without the currency risks normally associated with a
foreign investment since the bonds are issued in yen.
The bonds are subject to Japanese bond regulations, attracting investors
from Japan and providing capital to foreign issuers. Since investors bear
no currency risk from holding these bonds, Samurai bonds are attractive
investment opportunities for Japanese investors.
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Latest News and trends of Samurai Bonds issued by
Indian corporates
NTPC Ltd., India’s biggest electricity generator, is planning to raise the
equivalent of
$750 million in a yen-denominated loan targeting a pool of Japanese lenders in
general syndication. It’s only the second Indian borrower since January to seek
such financing, after Indian Railway Finance Corp. kicked off a deal last week.
The coronavirus pandemic and measures to contain it have hit India’s
businesses hard, and the central bank has forecast the economy will contract
this year for the first time in more than four decades. That has hurt local
borrowers’ ability to fund offshore, and access to yen loans would ease some
financial strains.
Indian borrowers face foreign-currency debt maturities of at least $12.6 billion
next quarter, after a spate of downgrades. The last Indian Samurai loan to
close was a deal by hydro-power developer NHPC Ltd. in January.
Representatives at NTPC and IRFC didn’t immediately reply to requests for
comment. In the absence of access to a wider pool of Japanese lenders earlier
this year, some local companies raised yen loans via club deals with their
relationship banks.

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3) INR denominated Bonds- Masala
Bonds
 Masala bonds are bonds issued outside India where Indian entities can raise
money from the overseas market in rupees (and not foreign currency).
 This has eased the situation where Indian companies had to earlier depend
only on External Commercial Borrowings (ECB) that were Raised and
Repaid in dollars only.
For Ex: Imagine a payment transfer where the issue and repayment are
years apart. Masala Bonds quickly become a game changer for Corporate
Debt market due to high benefits offered to both issuer and investors.
The peculiarity of the rupee-denominated bonds is that buying of bonds, interest
payments, and repayment all are expressed in rupees. Unlike traditional foreign
currency bond issued by an Indian entity, risk lies with the investor and is not
borne by the Indian issuer company.
In 2013, the Indian rupee declined to a record low against the US dollar.
Because of the flight of capital spurred by a significant current account deficit.
In response, the IFC and the Government of India addressed how to promote
the development of the global market in rupee. The first $1 billion offshore bond
program was launched in From October 2013. The IFC would issue offshore
Indian rupee bonds in the market for different maturities and bring the onshore
proceeds for different maturities. IFC
issued seven tranches of offshore rupee-denominated bonds, settled in US
dollars and pegged at the rupee foreign exchange rate, for maturities of
between three and seven years, in both 2013 and 2014.
Advantages of Masala Bonds:
 It has low-credit risk and high rupee-linked yield for investors
 The Finance Ministry has cut the ‘tax deducted at source’ on residents
outside the country on interest income from such bonds to 5% from 20%
making it an attractive investment option. Also, capital gain from rupee
appreciation is fully exempted from taxation.
 On an average, the rupee-denominated bonds have an interest rate of 2 to 3
% higher compared to the standard LIBOR (London Interbank Offer Rate)

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List of Top Masala
Bonds
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4) International Loan Market – External Commercial
Borrowings
External Commercial Borrowing (ECB), as the expression hints, is the loan/
debt/ borrowings taken by an eligible entity in India for commercial purpose,
externally i.e. from any recognized entity outside India. However, these
borrowings taken must confirm with norms of the Reserve Bank of India (RBI).
The ECBs are governed by the regulations of RBI under Master Direction -
External Commercial Borrowings, Trade Credits and Structured Obligations
(Master Direction),[1] and Foreign Exchange Management Act, 1999 (FEMA).[2]
The article aims to help understand the ECB and its impact on the Indian
Economy.
ECBs has made it easy for the Indian eligible entities to access foreign capital
and meet its needs. ECBs are in simple words commercial loans taken for a
commercial purpose in form of bank loans, suppliers' credit, buyers' credit or
securitized instruments, sought from foreign lenders. The ECBs can be
obtained through automatic route or approval route or by combination of both
the routes. Monitored by RBI, ECB is a facility made available to Indian eligible
entities to be able to seek huge investment from outside India and allow for
foreign capital flow in India.
The ECBs have shown a growing trend which can be seen through the below
chart:
Source: Article published in Times of India dated July 31,
2019.
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The RBI has in its January 2020 Bulletin confirmed that ECBs are one of the
reasons of rise in external debt of India in 2018-19 and first half of 2019-20.
The report further provides the below notes:
2019. The share of commercial bank loans in commercial borrowings has
witnessed a decline, while that of ECB raised through securitised instruments
(including FCCB) and banks’ overseas borrowings have increased between
endMarch 2015 and end-September 2019.
2020. The share of commercial bank loans in commercial borrowings which
was 56 per cent at end-March 2015, stood at 47 per cent at end-September
2019. In contrast, the share of ECB through securitised instruments
(including FCCB) increased from 7 per cent at end-March 2015 to 16 per
cent at end-September 2019.
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More Detail Data can be viewed at
https://www.rbi.org.in/scripts/ECBUserView.aspx?Id=2
03
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