Various sources of overseas finance for Multinational Companies (MNCs)

1. Overseas sources of finance
of Indian corporate.
-By Jugal Rambhiya.
- Amity University.

2. EQUITY
 Equity is ownership of an asset of value. Those values may have
debts or other liabilities attached to them. Equity is measured for
accounting purposes by subtracting liabilities from the value of asset.
Equity represents a claim on a proportionate share of a company’s
assets and earnings.
 In spite of decrease cost, extra flexibility, velocity and intensity the
Indian companies didn’t increase price range through foreign places
in 2015-16.
 India Inc had raised approximately Rs 10 crores
through foreign places equity services,
led via means of HDFC Bank.
 Conversion of ADRs/GDRs into equity may
also attract capital gain tax.

3.  American Depository
Receipts(ADR)
 A certificate issued by an American bank representing a share of
a foreign stock that the bank holds in trust but that is traded on
an American stock exchange.
 An American depository receipt is dollar-denominated and
entitles the bearer to any dividends and other benefits associated
with the stock underlying it.
 ADRs can be traded like any other security. ADRs shield
investors from foreign exchange risk and any applicable tariffs
they would have had to pay if they had bought the stock
outright.

4.  Global Depository
Receipts(GDR)
 GDRs represent ownership of an
underlying number of shares of a
foreign company and are commonly used to invest in
companies from developing or emerging markets.
 Prices of global depositary receipt are based on the values of
related shares, but they are traded and settled independently of
the underlying share. GDRs enable a company, the issuer, to
access investors in capital markets outside of its home country.
 To raise money in more than one market, some corporations use
GDRs to sell their stock on markets in countries other than the
one where they have their headquarters. Private markets use
GDRs to raise capital denominated in either U.S. dollars or euros.

5. DEBT- Foreign Exchange
Denominated Bonds
A foreign bond is a bond issued by a foreign company or institution in
a country other than its own, denominated in the currency of the
country where the bond is issued.
SAMURAI BONDS:
a) Samurai bonds are issued in Japan by foreign companies,
denominated in yen, and subject to Japanese regulations.
b) A foreign bond is issued in a domestic market by a foreign issuer
in the currency of the domestic country.
c) A foreign issuer who wants access to the Japanese debt market
would issue a bond referred to as a Samurai bond. Samurai
bonds give issuers the ability to access investment capital
available in Japan. The proceeds from the issuance of Samurai
bonds can be used by non-Japanese companies to break into the
Japanese market, or it can be converted into the issuing
company's local currency to be used on existing operations.

6.  YANKEE BONDS:
a) 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.
b) 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.
c) Yankee bonds also insulate the investor from currency risk. As
they are issued in dollars, the US investor is not affected if the
bond-country’s currency declines in value.
d) US rules and regulations for issuing such bonds are very strict
– it can take several months before an issue is approved for
sale.

7. DEBT- Indian Rupee
Denominated Bonds
 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. Investors outside
India who would like to invest in assets in India can subscribe to
these bonds.
 For the foreign investor, the rupee denominated bonds is attractive
as it will give him higher interest rate compared to the standard
interest rate prevailing in their markets.
 An additional benefit of rupee
denominated bonds is that it will
encourage foreign buyers to deal more
in rupees. Hence, internationalization
of rupee can be promoted by rupee
denominated bonds.

8. Foreign Currency Loans-
External Commercial Borrowing.
 External Commercial Borrowing (ECB), is the 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.
Advantages of ECB:
a) The value of funds is generally lower when borrowed from
external sources. For instance, there are economies that
have a lower interest rate, and Indian firms and
organizations can borrow money at lower interest rates from
the Eurozone and the United States as the rates are
comparatively low.

9. b) Since the markets are larger when raising funds
through ECB, companies can meet larger requirements
from international players in comparison with what can
be achieved through domestic players.
c) External Commercial Borrowing is basically just a way
to take a loan. It does not necessarily have to be of
equity nature, and therefore the company’s stakes will
not be diluted.