Rajiv Roy wrote a review of overseas sources of finance for Indian corporations. He discussed various equity sources such as American Depository Receipts (ADR), Global Depository Receipts (GDR), and debt sources including foreign currency loans. India's external debt in March 2020 was $558.5 billion, dominated by long-term borrowings. Prudent management of external debt is important for macroeconomic stability. International finance exists due to economic interdependence between nations and allows for international borrowing and lending.

1. NAME : RAJIV ROY
COURSE : MASTERS IN BUSINESS
ADMINISTRATION
SPECIALISATION : BANKING AND FINANCE
INSTITUTE : AMITY UNIVERSITY, MUMBAI

2. REVIEW OF OVERSEAS SOURCES OF FINANCE FOR
INDIAN CORPORATE

3. INTRODUCTION :
India has always been a capital-deficient country since independence and raising funds either by
means of equity or debt has always been problematic for industry. The question that comes up when
a business is planning a round of fundraising, is whether debt or equity is a better choice, and
whether funds should be raised domestically or through foreign channels. Globalisation has opened
doors and opportunities that were never explored before. Activities of companies are not limited to
one region or a single country.
INTERNATIONAL FINANCING :
International Financing is also known as International Macroeconomics as it deals with finance on a
global level. There are various sources for organizations to raise funds. To raise funds internationally
is one of them. With economies and the operations of the business organizations going global, Indian
companies have an access to funds in the global capital market. Local markets have been sluggish in
terms of fundraising so the focus of this article is on international fundraising. When an Indian
company considers raising funds there are traditional and nontraditional channels available.

4. • Equity.
A listing of an Indian company on stock markets and alternate investment exchanges is available in
most developed countries. This can be done either by means of an organic listing like an IPO or by
means of a reverse merger with an existing listed company followed by a stock offering. Stock
markets in Canada, the US and Singapore are quite suitable for such transactions. Equity guaranteed
debt also involves relying on the reputation of a JV partner or a significant partner shareholder,
which can then float a loan for the Indian company and guarantee it locally, making fundraising
easier and more economical. Equity based policy is very liberal and balanced, and international
investors can invest in nearly all sectors. Save in a few sensitive sectors such as retail and insurance,
100% foreign equity participation is available. In this liberal environment, it is easy to find equity
participation.
A.American Depository Receipts (ADR) Equity :
An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank
representing a specified number of shares—often one share—of a foreign company's stock. The ADR
trades on U.S. stock markets as any domestic shares would. 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. This a tool often used for international financing. As the
name suggests, depository receipts issued by a company in the USA are known as American
Depository Receipts. ADRs can be bought and sold in American markets like regular stocks. It is similar
to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock
exchange of the United States of America.

5. B.Global Depository Receipts (GDR) Equity :
A global depositary receipt (GDR) is very similar to an American depositary receipt (ADR). 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. 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.
Debt
Major banks and financial institutions are the first choice when raising debt funds from outside the
country. Many commercial banks in countries such as the US, Canada, the UK, Switzerland, Japan,
China and Taiwan provide funds to Indian businesses to finance their business needs. Debts from
banks and large financial institutions are mostly large tickets and suited for projects of significant
economic importance. Institutions such as the World Bank, the International Monetary Fund, the US
International Development Finance Corporation and the Asian Development Bank also fall into the
category of lenders that fund Indian projects of importance.

6. These bonds may be broadly classified as follows:
A)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. For example, if a British
company issued a U.S. dollar currency bond in the U.S. Some of the Foreign Exchange Denominated
Bonds are:
• 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.
• A Samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and
subject to Japanese regulations. Other types of yen-denominated bonds are Euroyens issued in
countries other than Japan, typically in London.
• A Eurobond is a bond issued by a company outside its domestic market, denominated in a currency
other than that of the country where the bond is issued. For example, if a British company issued a
U.S. dollar currency bond in Japan. Note that "Eurobond" does not refer to bonds issued only in
Europe, but rather is a generic term that applies to any bond issued without a specific jurisdiction.

7. B)Indian Rupee (INR) Denominated Bonds
Indian Rupee Denominated Bonds, more commonly known as “Masala Bonds”, are debt securities
denominated in Indian rupees issued by Indian entities to overseas investors but settled in foreign
currency. In other words, they are rupee denominated bonds issued to overseas buyers. Though these
bonds are issued to investors in offshore jurisdictions, still they are denominated in Indian currency.
Therefore, the term “Masala” has been ascribed to these bonds to give an Indian flavor to the same.
These bonds are attractive for foreign investors as they will provide a higher interest rate compared to
the standard interest rate prevailing in the market. Moreover, it encourages globalization of the Indian
Rupee as foreign buyers will deal more in rupees while buying these bonds.
Foreign Currency Loans- External Commercial Borrowings.
An external commercial borrowing (ECB) is an instrument used in India to facilitate Indian companies
to raise money outside the country in foreign currency. The government of India permits Indian
corporates to raise money via ECB for expansion of existing capacity as well as for fresh investments.
ECB can be availed by either automatic route or by approval route. Under automatic route, the
government has permitted some eligibility norms with respect to industry, amounts, end-use etc. If a
company passes all the prescribed norms, it can raise money without any prior approval.
Benefits OF ECB
 The cost of funds is usually cheaper from external source if borrowed from economies with a lower
rate of interest. Indian companies can usually borrow at lower rates from the U.S. and the
Eurozone as interest rates are lower there compared to the home country, India.
 Availability of larger market can help companies satisfy larger requirements from global players in a
better manner as compared to what can be achieved domestically.
 ECB is just a form of a loan and may not be of equity nature or convertible to equity. Hence, it does
not dilute stake in the company and can be done without giving away control because debtors do
not enjoy voting rights.

8. Analysis of Sources and Usage of Foreign sources of Corporate finance.
External Debt
India's external debt stands at USD 558.5 billion by end-Mar'20.
The RBI and the Ministry of Finance (MoF) jointly release the external debt stock position of
India. The Reserve Bank of India releases India's external debt statistics for the quarters ending March
and June with a lag of one quarter and those for the quarters ending September and December by
the finance ministry.

9. • External debt, otherwise known as foreign debt, is the component of total debt held by creditors of
the foreign nations. Debt can be in the form of money owed to banks (Asian Development Bank (ADB),
International Bank for Restructuring and Development (IBRD)) outside the domestic nation or
borrowings from the global financial institutions like the World Bank and International Monetary Fund
(IMF). The external debt in India is classified as long-term debt and short-term debt.
• The long-term debt consists of external commercial borrowings, borrowings from global financial
institutions like IMF (Multilateral Debt), borrowings from private banks (Bilateral Debt), trade credit,
NRI deposits, etc.
• On the other hand, short-term debt comprises of FII investments in government T-bills, investment in
T-bills by foreign central banks, external debt liabilities of commercial banks and RBI. External debt of
the country continues to be dominated by long-term borrowings. India continues to be among the less
vulnerable nations with its external debt indicators, comparing well with other indebted developing
countries.
• Among BRICS economies, India is in the fourth position after China, Brazil, and Russia regarding the
total debt stock and the third position regarding the share of short-term debt to total debt. The
prudent external debt policy pursued by the government has helped in maintaining foreign debt
within manageable limits.
• A cross-country comparison based on International Debt Statistics 2017 of the World Bank shows that
the ratio of India’s external debt stock to gross national income (GNI) at 23.4% was the fifth lowest.
Regarding the cover provided by foreign exchange reserves to external debt, India’s position was sixth
highest at 69.7% in 2015.

10. India and External Debt
Countries with chronic current account deficits generally take recourse to foreign equity and debt capital
for its financing. By bridging the gap between domestic saving and investment, foreign capital fosters
investment and growth in these countries. Excessive external indebtedness, however, is considered
detrimental to growth as it increases vulnerability of a country to external shocks and crises. A prudent
management of external debt, therefore, is essential for macroeconomic stability of emerging market
economies (EMEs).
The assessment of current external debt position is important from the perspective of examining the
evolution of external debt position in future and debt sustainability. An analysis of external debt
sustainability provides important information about a debtor country whether it is solvent and/or faces
liquidity problems. Furthermore, the analysis is crucial in identifying debt associated vulnerabilities and
preventing potential crises. In this context, the evolution of debt stock, behaviour of debt to GDP ratio,
maturity structure, currency and sectoral composition, debt service, and instrument-wise classification
are the pertinent aspects and therefore analysed from an intertemporal perspective.

11. From external debt sustainability perspective, the evolution of external debt stock of a country is
generally assessed in relation to its capacity to discharge debt obligations. In this context, external debt
to GDP ratio is a standard measure used to gauge a country’s solvency and potential to shift its
production to exports so as to enhance its debt repayment capacity.2 External debt may not necessarily
be considered harmful for a country provided the size of its economy grows in tandem and/or there is a
desired compositional shift in domestic production in favour of exports.
Conclusion:
Like international trade and business, international finance exists due to the fact that economic
activities of businesses, governments, and organizations get affected by the existence of nations. It is a
known fact that countries often borrow and lend from each other. In such trades, many countries use
their own currencies. Therefore, we must understand how the currencies compare with each other.
Moreover, we should also have a good understanding of how these goods are paid for and what is the
determining factor of the prices that the currencies trade at.
International trade is one of the most important factors of growth and prosperity of participating
economies. Its importance has got magnified many times due to globalization. Moreover, the
resurgence of the US from being the biggest international creditor to become the largest international
debtor is an important issue. These issues are a part of international macroeconomics, which is
popularly known as international finance.