International Long-term

Financing

Muazzam Imtiaz
Roll # 22
MBA 4th Semester
International Equity Financing
Equity Financing
Financing by issuing common stock or
preferred stock to the investor.

International Equity Financing

Issuance of common or preferred stock in
foreign country by listing in Foreign
Stock Exchange.
Primary Market
Underwriting or issuance of new equity
shares

Secondary Market
Trading of equities in foreign market.
 Objectives of Listings on Foreign
Stock Exchanges

Improve Liquidity of existing shares

Boost firm’s commercial visibility

Broaden ownership in foreign country

 American Depository Receipts
(ADRs)

Negotiable Certificates

Issued by US bank

Represent underlying shares of foreign

firm
Where to List?
If, support a new equity issue, target
market should be listing market.
If, increase the firm’s commercial and
political visibility, market should be in
which firm has significant physical
visibility.
If, improve liquidity of existing shares,
market should be major liquid market like
London, New York, Tokyo etc…
Selling New Shares in International
Markets
1. Selling shares in particular foreign
market underwritten in whole or in part
by institution from host country.
2. Selling Euro-equity issues to foreign
investors in more than one country
simultaneously.
3. Selling a foreign subsidiary’s shares to
investors in host country.
4. Selling shares to a foreign firm as part of
a strategic alliance.
Role of Privatization

Major force behind the volume of

international equity issues.

Profound impact on capital markets in

general and equity markets in particular.
Other Sources of Financing
Parallel Loans
“An initial exchange of funds between
firms in different countries, such that the
transaction is reversed at some time in the
future.”

Firms can avoid transaction cost

But it is difficult to find counterparties
Credit Swaps
“Acquire a loan for a foreign subsidiary
without having to send funds abroad.”

The transaction is between company and

bank.
Company deposit amount with local bank.
Finance is issued to subsidiary in foreign by
bank.
The transaction is swapped at maturity.
Government Lending
The host country government provide
financing when they believe that projects
will
generate jobs
transfer some technology
Train domestic workers
 Lending by International
Development Institutions

International Development Institutions

like World Bank, IMF offer soft loans to
the third world countries to finance
infrastructure projects.
The funds are given to the host country
but the companies working there are
financed indirectly by Government.