Kalyan Teja Nimushakavi

FDI Foreign Currency

FII Loans

ADR/GDR ECB
FCCB
• History – 1927
• What are DRs ?
• Why DR s?
• Mechanisms
• DR s are US Negotiable Securities issued by a depositary
bank that represent the ownership of certain underlying
shares of a non US Company.

• DR Programs allow the non US companies to get their shares

listed and traded in the US market. Some structures allow
them to raise capital even.
• For Company • For Investors
 Overseas capital markets’ access  To Diversify their portfolio

 Enhances visibility  Transactions in local currency

 Increased liquidity  Information easily available

 Fair Valuation

 Mergers & Acquisitions

 Privatization
• DRs are frequently identified by the markets in
which they are available or the rules and regulations
associated with the structure.

• ADRs – Traded in US markets

• GDR s – Typically traded in one or more markets

• EDR s – Traded in Euro markets

OTC Market

OTC Market

Exchange Listed

Capital Raising

Privately Placed
1. Purchase request
2. Contact to purchase
3. Shares Purchase
4. Depositing Shares
5. Confirmation
6. Issue of DR s
7. Transfer of DR s
 Underlying Shares
Agreement Issuer Local
Company Custodian

Money Dividends

Depositary Foreign Stock

Bank Exchange
Listing Requirements

Money DR s DTC/EuroClear
/ Clear sream
Dividends
Foreign
Investors
Sale of DRs:
 Intra market trading
 Cancellation (Cross border trading)
1. Cancellation Request
2. Surrender DR s
3. Confirmation
4. Release of Shares into home market
• Due to the mechanisms involved , DR s are prone to following
risks
 Inflation Risks of the respective countries

 Exchange Rate risks

 Political risks

 Finally Performance of the company

ADR
• Higher Valuation
• Higher participation
• Wide research Coverage
• More processing time i.e. 5-6
months
• Stringent regulatory requirements
• US GAAP
• Higher Costs associated
GDR
• Lower Valuation
• Lower participation
• Limited research coverage
• Less processing time
• Relaxed requirements
• IAS
• Relatively Lower costs
• Foreign currency loans are given by the domestic banks to
Corporates.
• These loans are given from the deposits of the Foreign
currency accounts Non Resident Indians.

• However Credit rating of the company plays an important role

• Terms differ for different banks in terms of requirements

• These funds are primarily available to
 Export Oriented Units (Project Financing)

 Importing companies (Payments)

 Pubic Sector Units (For purchase of capital goods)

• Relatively Cheaper Funds

• Lesser Processing time
• Funds can be used for following:
 Working Capital Management (3-18 Months)

 Project Financing

 New Capacity augmentation – Capital goods

 Importers for meeting import obligations

• End Use Restrictions:

 Investment in Capital Markets

 Investment in Real Estate Sector

• Indian companies/entities other than individuals, trusts and
non‐profit making organisations can raise money from abroad

• These include buyer’s credit, bank loans, securities issued,

credits from official export credit agencies

• These funds are made available by foreign banks, financial

institutions abroad like IMF, World Bank, UBS, ADB etc.
• The regulations are subject to change from time to time
• There is a cap on the total amount that can be taken in a year
through the route of ECB s
• Generally three years of good financial performance and
prudent debt management are prerequisites for ECB
• ECB s - approved by RBI.
• Usage Specifications:
 Raised only for Investment (Capital Goods, Capacity augmentation)

 Permitted for Overseas Acquisitions (JVs or Subsidiaries)

 Permitted for acquisition of shares in PSUs (Disinvestment)

• Restrictions:
 Investment in Capital Markets

 Investment in Real Estate Sector

 On Lending of funds

 Domestic Companies Takeover

• Quasi Debt instrument with an option of conversion
• All the transactions happen in currency other than the local
currency
 Receipts from issue of FCCB
 Coupon Payments
 Redemption

• Advantages of both debt and equity instrument

• Companies issuing FCCB s need to hedge (Till maturity
period)
• FCCBs are generally of two types
• Due to the option of conversion,
 Associated with low Coupon rates (30-40 % lesser)

 Associated with Premium offerings (30-70 % higher)

• Availability of Zero Coupon Bonds

• Redemption based on future expected cash flows
• Intention of conversion both from lender and issuer
• Approvals
• Processing time
• Ease of availability
• Purpose of borrowing