RAISING FINANCE RAISING FINANCE THROUGH THROUGH ADR,GDR &ADR,GDR &EURO ISSUEEURO ISSUE

GROUP:4GROUP:4thth

SUBMITTED TO:

MAYURI PATEL.

PREPARED BY:NILAM SAVALIYA . (11)

URVASHI THAKOR. (18)

PRUTHVI NAIK. (36)

SHILPA PATEL. (51)

HEMALI MANGROLA. (57)

INDEXINDEXModes of raising finance

Procedure of issue

Meaning of ADR / GDR

Advantages & Disadvantages of ADR / GDR

Difference between ADR & GDR

Indian company using ADR & GDR

EURO ISSUE- Meaning

Syndicate Euro credits

Advantages of Euro Issue

Instrument of Euro issue

Modes of raising finance in Modes of raising finance in India from International MarketsIndia from International Markets

Global Global Depository Depository

Receipts (GDRs)Receipts (GDRs)

AmericanAmericanDepositoryDepository

Receipts (ADRsReceipts (ADRs))

II. Foreign Currency Convertible Bonds

(FCCBs)

Euro Issue in IndiaEuro Issue in India

I. Depository Receipts

Concept Concept of of

Depository Depository ReceiptReceipt

Meaning of GDR & ADRMeaning of GDR & ADR

Global Depository Receipt American Depository Receipt

A Negotiable Instrument in the form of Certificate or Depository Receipt.

Created by Overseas Depository Bank Outside India.

Issue to NRI against Ordinary Shares.

A Negotiable Instrument in the form of Certificate or Depository Receipt.

Created by Overseas Depository Bank in the US Market.

Issue to NRI against Ordinary Shares for trading in US market.

Issuer Company

In India

(Through Lead Manager)

Overseas Depository

Overseas Investor

European or U.S. Stock Exchange

Underlying Shares Custodian(Banking Co. situated in

India which has the physical possession of shares

underlying GDR / ADR )

Dividend

GDR/ADR Listing

Money

Working Mechanism of ADR Working Mechanism of ADR / GDR/ GDR

Advantages of ADRAdvantages of ADR• It is an easy and cost effective way to buy shares of

a foreign company.

• Reduces administrative costs and avoids foreign taxes on every transaction.

• Helps companies which are listed to tap the American equity markets.

• Any foreigner can purchase these securities.

• The purchaser has a theoretical right to exchange shares ( non- voting right shares for voting rights)

AdvantagesAdvantages of GDR of GDR

• GDR allow investors to invest in foreign companies without worrying about foreign trading practices, laws.

• Easier trading, payments of dividends are in the GDR currency.

• GDR are liquid because they are based on demand and supply which is regulated by creating or canceling shares.

• However, they have foreign exchange risk i.e.

currency of issuer is different from currency of GDR.

Difference Between ADR & Difference Between ADR & GDRGDR

• Both ADR and GDR are depository receipts, and represent a claim on the underlying shares.

• The only difference is the location where they are traded.

• Depositary receipts traded in USA - ADR

• Depositary receipts traded in a country other than USA - GDR

Indian company using ADR & Indian company using ADR & GDRGDRCOMPANY ADR GDR

Bajaj Auto NO YES

Dr. Reddys YES YES

HDFC Bank YES YES

Hindalco NO YES

ICICI Bank YES YES

Infosys Technologies YES YES

ITC NO YES

L & T NO YES

MTNL YES YES

Patni Computers YES NO

Ranbaxy Laboratories NO YES

Tata Motors YES NO

State Bank of India NO YES

VSNL YES YES

WIPRO YES YES

EURO ISSUE

What is Euro Issue

EURO INTRODUCTIONEURO INTRODUCTION

Euro Issue is one of the popular and attractive mode for Indian Companies for raising funds from the International market.

Finance Minister Mr. Manmohan Singh initiated this Scheme on 25th Feb1992 to allow FII’s to invest in Indian Capital Market.

Guidelines in this regard were issued by Deptt. of Economic Affairs, Ministry of Finance on 12th November 1993.

WHAT IS EURO WHAT IS EURO CURRENCY?CURRENCY?Euro Currency-Any currency banked outside its country of

origin. Example-US dollar banked in EnglandEuro bank-Banks that accepts deposits and make loans

in foreign countries Example -Euro Currency Bank at Frankfurt franc

Retail Euro currency Retail Euro currency marketmarket

• Syndicated Euro currency loans were at the origin of the internationalization of medium term financing formulas.

• 1960s the first syndicated Euro currency loan operation began to appear.

• From the end of 1974 when things began to calm down until 1982, the syndicated euro currency loan market grew almost exponentially due to the necessity of financing BOP deficits in the developing countries & some of the major industrialized countries.

• Since 1982 the Eurobond has become a major competitor of the syndicated Euro currency loan.

• Access to international sources of financing.

• Diversified sources & large scale loans.

• Speed & flexibility.

CharacteristicsCharacteristics of syndicated of syndicated Euro creditsEuro credits

• The lead manager The lead mgr is responsible for negotiating the overall conditions of

the loan concerning rate, maturities, guaranties etc. with the borrower. Sometimes syndicate includes two or more lead mgrs.

• Organizing the loan A syndicated is rarely formed by one wave of telexes, several

invitation are usually necessary. when the lead mgr decides that the loan is ready, each participating

bank, called an underwriter, is contracted & the amt of their participation is confirmed.

The loan has been completed, the main role switches from the lead mgr to that of the agent bank.

• Guidelines for choosing the mgmt group Diversified geographically Innovative financial, organizational of commercial procedure can

be helpful in securing the most favorable terms of the borrower.

Cont….Cont….

• Different types of credits Term loans (the drawdown period, the grace period, the redemption

period) Revolving credit facilities

• Borrowing costs• Interest• Commissions (up-front fees & periodic fees)• Principium (The lead mgrs fee)• Underwriting fee• Participation fee

Enhance the image of Co. &its products in International

Market.

Providesmore

liquidity

Provides a competitive advantage in interest rates

Helps to gain Higher returns on investments

Enables Indian Companies to Compete

& Operate Globally

Advantages of Euro Advantages of Euro IssueIssue

AdvantagesAdvantages

Instruments of Euro Instruments of Euro issueissue

SHORT-TERM AND MEDIUM-TERM INSTRUMENTS

Short- Term Instrument:1. Euro Notes2. Euro Commercial Paper

Medium- Term Instrument1. Medium- term Euro Notes

1.1. Euro Notes :Euro Notes :

Euro notes are like promissory notes issued for raising short-term funds.

They are not denominated in the currency the country where they are issued.

Euro notes represent low-cost funding route. They re easily tailored to suit the requirements of

different kinds of borrowers. When the issuer plans to issue Euro notes, it hires the

services of facility agents or the lead arranger. The Euro notes carry three main cost components:

1. Underwriting fee2. One –time management fee for structuring , pricing

and documentation3. Margin on the note

Short Term InstrumentsShort Term Instruments

2. Euro Commercial Papers:2. Euro Commercial Papers:

Euro commercial papers are short – term fund instruments issued only by highly rated companies.

ECS come up on the pattern of domestic market commercial papers that had a beginning in the USA and Canada as in 1950s.

The prefix “ Euro” means that the ECP is issued outside the country in the currency in which it is denominated.

Most of the ECPs are denominated in US dollars, but they are different from the US commercial papers in the sense that the ECPs have longer maturity going up to one year.

The issue is normally arranged trough placement agents as in the case of Euro notes.

The ECPs are issued either in interest- bearing form or in a discounted form with interest built in the issue price itself.

1. 1. Medium- term Euro Notes: Medium- term Euro Notes:

Medium- term Euro notes are medium – term fund instrument.They are a compromise between short-term Euro notes and long- term Euro notes and long – term Euro bonds as their maturity ranges between one year and five to seven year.Medium- term Euro note is issued to get medium- term funds in foreign currency without any need for redemption and fresh issue.Medium Euro note are not underwritten , yet there is provision for underwriting. This is for ensuring the borrowers that they get the funds even if they lack sufficient creditworthiness.Medium-Term Euro notes carry fixed rate of interest, although floating rates are also there.The issuers are mainly Banks, sovereigns and international agencies.

Medium Term Instrument Medium Term Instrument