Identifying Opportunities

ADR/GDR/FCCB
Overview of ADR / GDR & FCCB Issuance
GDR
A Global Depositary Receipt or GDR is a
security issued by a Depository Bank, such as
Bank of New York or Deutsche Bank, in place
of the foreign shares (issued by an Indian
issuer such as SBI/Reliance) held in trust by
that bank, thereby facilitating the trading of
those Indian shares in the form of GDRs by
international investors, on global markets,
such as London. "
Equity Options
Foreign
ADR
Issue
GDR
Issue
Visibility is very high
No lock-in for investors
Threshold minimum size & float
Stringent regulatory requirements (e.g.
Sarbanes Oxley)
High issuance costs
Relatively faster
No lock-in for investors
Flexibility to choose specific
investors
Relatively moderate cost
Potential pricing discount

GDR Issue Key Advantages

Parameter Features
Time to completion Accelerated GDR can be completed in 7 - 8 weeks
Pricing
Close to the market price on the day of pricing the issuance, subject to
SEBI floor
Size of the issuance Typically, in the region of US$ 40-250 mn
New Investors
Leading FIIs and global institutional investors can participate in quality GDR
issuances
Lock-in stipulation SEBI lock-in does not apply to shares underlying the GDRs
Visibility for the Company High visibility amongst the international investors
Post Issue Volatility of Stock Price Low due to presence of long only FIIs
Restrictive Covenants None
GDR Principal
Characteristics
Parameter Features
Documentati on
Euro style documentation under UK law (10b(5) legal opinion required)
Form/Structure
GDS represent the tradeable instrument created out of the GDR programme
Settlement
Via Euroclear in Europe through scripless book entry system and via DTC in
USA
Accounts
Prepared according to Indian Accounting Standards, though investors prefer to
see reformatted accounts
Listing
London or Luxembourg
Distribution
International institutions under Reg S and Rule 144A of US Securities, 1933
Documentati on
International standard but less onerous than the SEC - fully acceptable to
international investors
Ongoing disclosure
In line with home market requirements. However new Transparency Obligations
Directives of EU are expected shortly
Follow-on fund raising
There have been a number of successful GDR follow on issues
Time Table
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Illustrative timetable of an offering
Week Starting Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 1 WK 8
Kickoff meeting (incl. legal counsel, accountants)
Receipt of accounts
Draft prospectus (including due diligence)
Submit first draft to Luxembourg/London Exchange
Receive & reply to Luxembourg/London comments
Finalize and file the red
File the final document with Luxembourg/London Stock Exchange
Discuss and finalize Underwriting agreement
Discuss and finalize Lock up agreement
Discuss and finalize Deposit agreement
Sign the underwriting agreement
Receive signed lock up agreement
Sign the deposit agreement
Management briefings to analysts
Preparation and distribution of research
Black out period
Discussion on various marketing issues
Conference calls/roadshowwith potential investors
Launch andbookbuilding
Pricing
** Finalize allocation to investors
** Bring down due diligence
** Closing, settlement, listing and start of official trading
* Typically within 2 to 3 working days of Pricing
Typical Cost Structure
Based on an assumed issue size of around US$ 75 - 150 million,
set out below is an estimate of the expenses* other than
Underwriting Commissions for the listing of the Companys
GDR :
* Note that the above fees represent our best estimates and actual fee would be based on quotations received. In addition, there would be costs
associated with travel, communication etc.
US$ US$
International Legal Counsel 325,000 - 425,000
Domestic Legal Counsel 30,000 - 50,000
Accountants 80,000 - 120,000
Roadshow Expenses 40,000 - 50,000
Printing fee 15,000 - 20,000
Total 490,000 - 665,000

Marketing Process
u Develop
investment thesis
u Syndicate
Selection and
structure
u Offering structure
u Research
publication
u Sales force
teach-in
u Investor pre-
marketing
u Feedback from
pre-marketing
u Road-show
rehearsal
u Publish
preliminary
prospectus
u Targeted Road-
shows
u Daily Updates
u Book building
u Quality Allocation
u Aftermarket trading
support
u Ongoing research
coverage
u Post Offering
Support
Preparation Education
Road-show &
Book-building
Launch
Pricing &
Aftermarket
There are a number of stages to building international
recognition and momentum in the build-up to the Companys
GDR listing:
Marketing Strategies: Pre-marketing
Objective of pre-marketing: To get feedback
from the potential investors on the company,
pricing and investor appetite
Launch preliminary marketing initiatives &
approach the core investors with definite time
table and offering size
Target valuation/price range with investors
prior to the launch of the transaction, but will
refine the discount range as the book-building
process continues
Pre-marketing
4-5 days
Research Analyst
Foreign Currency Convertible
Bonds (FCCBs)
FCCBs are a type of convertible bonds issued in a currency different than the
issuer's domestic currency.
Main features
FCCBs have to compulsorily denominated in any foreign currency (usually they
are USD denominated)
The Investors have the option to convert these bonds into equity shares/GDRs of
the issuing Company after a stipulated time period at a price determined at the
time of issuing FCCBs
The conversion price is at a premium over the current stock price, or is set
by a formula based on the price at the time of redemption.
The issuer may some times have a call option, generally with a call hurdle,
i e subject to a minimum stock price at the time of call which means,
invariably at the exercise of call, the investors would opt for conversion into
equity.
FCCBs
The convertibility of the bond is akin to a put option to the bondholder, as
he can redeem the bond while opting for conversion.
As an investor in the equity, the bondholder has a call option i.e. he has
the right to buy equity at the set price.
Till the time they are not converted into equity, they have all the regular
features of a bond viz. coupon rate and redemption premium as the two
streams of earnings
Advantages to the Issuer
Low coupon rate
Staggered Dilution
Delayed dilution of EPS
An FCCB timeline is shorter than a domestic IPO or a syndicated loan
No rating required
Bonds need not be secured
FCCB carries fewer covenants as compared to syndicated loans or debentures
Minimum return assured along with an opportunity to share in themarket
upside
FCCB - An indicative Timeline
Days (T+) 4 8 12 20 16 28 32 45 24 36 40
Structuring and Agreement of the Terms
Conduct Financial/Legal Due Diligence
Draft Offering Circular
Circulate Draft Subscription Agreement
Comments and Review of the Offer Circular
Comments on the Subscription Agreement
Draft Legal Opinion & Auditors Comfort
Letter
Finalise Due Diligence
Finalise Legal Opinions & Offering Circular
Obtain In-principle Aproval of Stock
Exchanges
Obtain RBI Loan Registration Number
Finalising the various documents
Pricing of FCCBs and Signing of Documents
Issue Payment Instructions
Closing, payment and Issue of FCCBs
T =Kick Off
Meeting