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206 International Financial Management

LESSON

10
FOREIGN BOND AND EURO BOND
CONTENTS
10.0 10.1 10.2 10.3 Aims and Objectives Introduction Foreign Bonds Euro Bond Market 10.3.1 10.3.2 10.3.3 10.3.4 10.3.5 10.3.6 10.3.7 10.3.8 10.3.9 10.3.10 10.4 10.5 10.6 10.7 10.8 10.9 Special Features and Innovations in the International Bond Market External Commercial Borrowings Why ECBs? Risks involved in ECBs Managing Exposure Arising from ECBs Policy Changes for Encouraging External Commercial Borrowings (ECBs) Euro Debt Foreign Currency Convertible Bonds (FCCBs) Advantages of Euro Issues Performance of Indian Euro Issues

Short-term Instruments Medium Term Instruments Let us Sum up Lesson End Activity Keywords Questions for Discussion

10.10 Suggested Readings

10.0 AIMS AND OBJECTIVES


After studying this lesson, you will be able to: Understand foreign bonds and the Euro bond market Learn about the features and innovations in the international bond market Learn about short-term and medium-term instruments in the international financial management

10.1 INTRODUCTION
This constitutes the long-term debt market in the international scene. Many countries have very active bond markets available to domestic and foreign investors. The US market in the mid-1980s was very attractive for the foreign investors given the relative political and economic stability, high real rates of interest and the governments desire to finance its budget deficit with borrowings. The International Bond Market can be broadly classified into two categories: Foreign bonds and Euro bonds.

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10.2 FOREIGN BONDS


These are the bonds floated in a particular domestic capital market (and in the domestic currency of that market) by non-resident entities. The bonds are generally named on the basis of the capital markets in which they are floated.
A recent example of an Indian company going in for a foreign bond (namely Yankee bond) is that of Reliance. The $200 million Yankee bond issue of RIL was split into two issues of $100 million each. One issue had a 20 years maturity period while the other had a 30 years maturity with a put option after 12 years. These were priced just at the end of the indicated band of 350370 basis points and generated enough demand to raise $200 million. This offering was assigned Baa3 rating by Moodys and a BB+ by Standard and Poor. Further, RIL succeeded in even selling 50 year bonds with a put option in the 13th year at 350 basis points over treasuries.

Dollar denominated bonds issued in the US domestic markets by non-US companies are known as Yankee Bonds. Yen denominated bonds issued in Japanese domestic market by non-Japanese companies are known as Samurai Bonds. Pound denominated bonds issued in the UK are called Bulldog Bonds. The procedure for floating foreign bonds is similar to that of Euro bonds. However, the complexities of individual market mechanisms and their respective characteristics need to be understood.

10.3 EURO BOND MARKET


Euro bonds are unsecured debt securities issued and sold in markets outside the home country of the issuer (borrower) and denominated in a currency different from that of the home country of the issuer. Euro bonds are underwritten and sold in more than one market simultaneously usually through international syndicates and are purchased by an international investing public that extends far beyond the confines of the countries of issue. For example, a dollar denominated bond issued in the UK is a Euro (dollar) bond; similarly, a Yen denominated bond issued in the US is a Euro (Yen) bond. Occasionally, Euro bond issues may provide currency options, which enable the creditor to demand repayment in one of several currencies and thereby reduce the exchange risk inherent in single currency foreign bonds. More recently, however, interest and principal on the bonds are payable in US dollars. Over the last several years, the Euro bond market has become a market for dollar denominated obligations of foreign as well as US borrowers that are purchased by non-US investors. In an effort to broaden investor appeal, corporate borrowers have increasingly shifted from straight debt issues to bonds that are convertible into common stock. The option of conversion rests with the holder of the convertible issue. For the non-resident investor, one of the main attractions of a convertible issue is that it usually offers a large current return than the dividend of the underlying stock.

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In the past decade, the Euro bond market has grown explosively, due to a variety of reasons primarily the deregulation of markets. The weakening of the dollar in 1985 also caused a shift out of dollars toward Euro-Yen and Euro-Deutsche mark issues. The control of inflation in the industrial countries also has resulted in a big demand for financial assets, allowing companies to issue bonds in unprecedented quantities and in a variety of currencies. The major benefits of the Euro bond market are that it is relatively unregulated, its income is essentially untaxed, and there appears to be greater flexibility in making issues than is the case in purely national markets. In addition, it is an important step towards a fully integrated European capital market. The Yen is potentially the largest source of funds for the Euro bond market, because of the huge trade surpluses that Japan has enjoyed in recent years.

10.3.1 Special Features and Innovations in the International Bond Market


The Euro bond market has flourished due to several unique features that set it apart from the domestic and foreign bond market. These features are: 1. Like the Eurocurrency market, the Eurobond market is an off shore operation not subject to national controls, which most countries have over domestic issues of securities denominated in local currency. Euro bond issues are not subject to the costly and time-consuming registration procedure. Disclosure requirements are also less stringent than those which apply to domestic issues. This feature appeals to many MNCs, which often do not wish to disclose detailed and highly sensitive information. Euro bonds are issued in bearer form, which facilitates their negotiation in the secondary market. This feature also means that the country of the ultimate owner of the bond is not a matter of public record. Euro bonds offer investors, exemption from tax-withholding provisions applicable to domestic and foreign bonds. This feature allows US MNCs to reduce their borrowing cost by having their offshore financing subsidiaries issue Eurodollar bonds, with payment of interest and principal guaranteed by the parent company.

2.

3.

4.

The growth and popularity of both Euro bonds and Foreign bonds are also attributed in part to the many innovations which have been introduced in the international bond market, particularly in the 1980s. These innovations include: 1. The issuance of convertible bonds or bonds with warrants attached. Both bonds entitle the holder to convert these bonds into common stock of the issuing corporation at a specified conversion ratio. Due to the volatility of interest rates in recent years, an increasing percentage of international bonds has been issued in the form of floating rate notes. The use of multiple currency bonds and currency cocktails which are designed to attract investors interested in hedging the exchange risk. A multiple currency bond entitles the holder to request payment of the interest and principal in any of the certain specified currencies whose exchange parities are established at the outset. This arrangement, thus, gives the investor the option to request payment in the currency which has appreciated the most or the currency that has depreciated the least (if none has appreciated) vis--vis his or her own currency.

2. 3.

Thus, the major challenge facing the Euro bond market in the future is the deregulation of capital markets. As domestic markets deregulate, there is the possibility that the Euro bond market may become increasingly unnecessary.

10.3.2 External Commercial Borrowings


The underdeveloped and the developing economies require external assistance due to the shortage of capital within the country. The savings generated by the citizens and tax revenues collected by the government are too meagre compared to the funds requirement for the development of the infrastructure sector, the industry and various other developmental activities. The governments of these economies, therefore, generally encourage the inflow of external funds into the country. The reasons why they follow such a policy are: 1. 2. 3. 4. 5. The scarcity of domestic capital resources hinders a high rate of capital formation. The rate of savings is low because the income levels are at a low level and whatever small savings are possible, they are very difficult to mobilise. Scarcity of foreign exchange also plays an important role as most of the developing economies are characterized by an adverse balance of payment. Generally the countrys exports are not sufficient to cover the large imports of machinery, components, spare parts, materials and related services. Funding of infrastructure sector by the government alone cannot go on forever on borrowed money because the monetary needs of the infrastructure sector in a developing economy are massive and if the government were to even attempt to borrow it all, then the interest and deficits would rocket with the usual dizzying symptoms on the economy.

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The governments, therefore, allow the corporate sector to access funds from abroad in the form of External Commercial Borrowings (ECBs). ECBs are defined to include (1) Commercial bank loans, (2) buyers credit, (3) suppliers credit, (4) securitised instruments such as Floating Rate Notes and Fixed Rate bonds, (5) credit from official sector, e.g., window of multilateral financial institutions such as International Finance Corporation (Washington), ADB, AFIC, and (6) various forms of Euro bonds and syndicated loans.

10.3.3 Why ECBs?


Over the last few years, more and more Indian corporates have begun to look at the Euromarkets for meeting their financial needs. The existence of lower cost of funds in these markets in spite of the currency differential and the costs associated with hedging the exposure as compared to the high costs prevailing in the domestic markets have made these markets the darling of eligible Indian companies. Companies, which meet the Reserve Bank of Indias guidelines in this regard, are now raising funds in these markets more as a matter of rule rather than exception. The greater reliance on foreign funds, denominated in foreign currencies and pegged to interest rates prevailing abroad, make it all the more pertinent for corporates to cover this exposure to check against adverse movements of the exchange rate between the currencies as well as the adverse movements of the basis interest rate (such as LIBOR). Let us now understand as to why borrowing in Euromarkets makes sense for the corporates. In the period before liberalisation, a company desiring to raise funds could do so from the Indian capital markets (in the form of debt or equity offerings) or from the domestic lending institutions. Raising funds from the Indian capital markets had its own peculiarities: debt was difficult because of the absence of an active debts market which made exit for the investors difficult and consequently forced corporates to raise the coupon rate to make their issues attractive and raising equity depended a lot on the

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market conditions prevailing. Borrowing money from financial institutions was a costly affair, both in terms of the cost of funds as well as in terms of time involved. Moreover, the funds from institutions used to be tied to a whole chain of protective covenants that restricted the operating freedom of the companies. The problems being faced in raising adequate capital domestically took their toll in the form of many a good projects being sacrificed for scarcity of cheap and timely funds. With the onset of the liberalisation process, the Government realised that in order to attain a faster growth rate, adequate and cheap capital was a prerequisite and the domestic institutions/markets were not in a position to meet this demand in totality, necessitating the raising of capital abroad by corporates. However, the Government allowed only those corporates that met some stipulated conditions so that the effect on the BOP account was manageable. With the passage of time and the strengthening of the countrys fiscal position, the Government has periodically reviewed these conditions to enable more and more companies to raise money abroad. And today, almost all the corporates who are permitted to borrow in the Euromarkets have tapped this source, many on multiple occasions. Thus, the corporates find this route of raising money very attractive. The first advantage that capital raised abroad has over domestic sources is the significant reduction in the cost of funds. While the domestic interest rates are exceptionally high and have not reduced in tune with the easing of the liquidity position over time, the interest rates abroad have remained significantly lower than the domestic rates. Even after accounting for the costs incurred on hedging this exposure (most of the funds are denominated in dollars and other major currencies as well as carry a floating rate of interest), the overall costs are much lower than the domestic cost of funds. Another advantage that the Eurofunds have over domestically raised capital is that of timing. While the Eurofunds become available in less than a month, it may take almost thrice the period in raising the same money domestically. Thus the borrowers are not only able to plan their borrowings better but also are saved from the costs and uncertainties associated with longer delays. Moreover, the money raised abroad has negligible covenants and end-use conditions attached, as compared to the money borrowed/raised domestically. However, as of now, there remain a few bottlenecks as far as external borrowings are concerned. First, this option is available to only the prime borrowers and a majority of Indian corporates are outside its purview. Therefore, this route, as a capital raising option is selectively open and the better among the borrowing corporates are making hay while the sun shines while the others wait for their turn. Moreover, this option, can only be used to supplement the traditional sources of finance, given the stringent conditions applicable. Also, the cost of finance depends on the credit rating of the company and in the case of even the best borrowers in the country, this cost is constrained by the sovereign rating of India, which is not very high. Finally, once these options are exercised they expose the borrower to currency and interest rate risk, to hedge which, not too many options are available as yet. Over the past few years, the Government and the Reserve Bank of India have periodically reviewed and revised the norms applicable, making them a lot more lenient than they were before, making more companies eligible for raising capital abroad. The result of this is evident from the drastic rise in the total amounts raised by the companies over the years. At a time when the domestic primary market is down in the dumps and the domestic interest rates are still relatively high, external borrowing has come as a breather, albeit for a small number of companies. As already stated, funds in the case of external commercial borrowings are denominated in foreign currencies, particularly the fully convertible ones. In the case of India, most of

these have been denominated in US dollars and to a relatively less extent in Deutschemarks, Yen and Pound Sterling. The periodic interest payment and the final principal repayment have to be made in the currency of denomination of the loan. Thus, the corporate faces a currency risk as his equivalent pre-conversion liability (in Rupees) depends on the prevailing exchange rate between the currencies. Any adverse movement in the exchange rate is likely to make the overall cost higher for the borrower, not only eating into its margins but also lending an air of uncertainty to his cost of capital. Similarly, borrowing in foreign markets is subject to interest rate risk. Almost all the loans raised by corporates abroad carry a floating rate coupon (mostly 6-month LIBOR plus a spread based on the risk involved). Any adverse movement of the LIBOR has the potential of upsetting the firms estimates as well as eating into its profits. Source of External Commercial Borrowings ECBs may be raised from any internationally recognised source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international capital markets. Purpose of External Commercial Borrowings ECBs are supposed to be utilised for meeting foreign exchange cost of capital goods and services and also for project related rupee expenditure up to certain limits. The end use to which funds can be put can be categorised into: Forex cost of capital goods and services. For project related rupee expenditure in infrastructure projects in power, telecom and railways. For telecom sector license fee payments is approved use of ECB. For project related rupee expenditure subject to terms and conditions specified in schemes. Corporate borrowers able to raise long-term resources with an average maturity of 10 years and 20 years will be allowed to use the ECB proceeds up to USD 100 million and USD 200 million respectively without any end use restrictions, i.e., for general corporate objectives. Not to be used in investment in stock markets and speculation in real estate. Approvals Required The following approvals are required before a corporate can raise an ECB: For ECB of minimum maturity of less than 3 years, approval from RBI alone is required. For ECB of minimum maturity of 3 years and above, sanction is required from the ECB Division, Department of Economic Affairs, Ministry of Finance (MoF) and thereafter approval is to be obtained from RBI. An executed copy of the loan agreement is to be submitted to MoF before obtaining the clearance from RBI, within three months from the date of obtainment of approval from MoF. Maturity Period for ECBs The guidelines issued by the Ministry of Finance specify the following minimum average maturities for the ECBs realised by the Indian corporates: (a) Minimum average maturity of three years for ECBs up to US$ 15 million equivalent;

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(b) (c)

Minimum average maturity of seven years for ECBs greater than US$ 15 million equivalent; The 100% Export Oriented Units (EOUs) are permitted ECB at a minimum average maturity of three years even for amounts exceeding USD 15 million equivalent.

Indian Development Financial Institutions (DFIs) and corporates engaged in infrastructure projects in telecommunications and Oil Exploration and Development are permitted to raise ECB at a minimum average maturity of five years even for borrowings exceeding USD 15 million equivalent. However, considering the fact that very few banks are ready to lock themselves up for commercial borrowings, those too for India, at average maturities exceeding seven years and even if they do, the cost of such borrowings is extremely high, accessing ECB for amounts beyond USD 15 million remains a daunting task. Exporters and 100 per cent EOUs are anyway able to obtain foreign currency funds by way of FCNR(B) loans. Hence, they may not be very enthusiastic about raising short-term funds under the ECB route. Economics of Costing The interest rate limits on ECB for project financing allow interest rate spreads up to 350 basis points above LIBOR/US treasury. Since the LIBOR rules at around 6 per cent and if we assume that the company can raise funds at 300 basis points above LIBOR, its interest cost works out to 9 per cent per annum. The domestic foreign exchange rate market is not deep enough to enable a company to cover its currency risks for more than six months. Moreover, the forward rates do not truly reflect the interest rate differentials between the US and India. Assuming the Indian rupee will depreciate by 10 per cent, the cost of the external borrowing works out to 21 per cent. Compared to the cost of domestic borrowings, which have moved up in the recent past it still works out to be more expensive to borrow externally.
Six Month LIBOR 6.00% Interest Spread 3.00% Interest Cost 9.00% Depreciat- Guarantee ion of Cost Rupee 10.00% 2.00% Total Cost 21.00% Interest Cost on Domestic Borrowings 19.00% Difference

(2.00%)

10.3.4 Risks Involved in ECBs


Raising an ECB abroad definitely offers the firm a cost advantage as compared to raising the money in India. It is for this reason that most of the Indian financial institutions find their prime blue-chip clients deserting them and moving on to tapping the ECB market. However, borrowing abroad has risks inherent to it and before deciding in favour of ECBs, a company should make a quantitative estimate of the costs incurred in guarding against these risks. First, raising money abroad exposes the firm to a currency risk. For example, a company raising funds abroad in dollars might not have any operations that yield returns in dollars. The company has its revenues in the domestic currency, i.e., Rupees, but because of the dollar borrowing now has a liability denominated in another currency. If, for example, the company does not provide any cover (either natural or induced) to meet any contingencies, any downward movement of the rupee vis--vis the dollar, or a devaluation of the rupee against the dollar has the potential of increasing the firms cost of capital. This happens because now the firm has to spend more rupees in buying the required amount of dollars to meet the interest/principal liability.

Simultaneously, the firm is also exposed to an interest rate risk. This is because the firms liability depends on the interest rate which may vary from time to time once the borrowing has been done. In India, most of the ECBs are pegged to the 6-month LIBOR (denoted as 6-month LIBOR plus a spread) and any variation (particularly an increase) in the LIBOR at the reset dates (dates on which the prevailing LIBOR is used to compute the liability) enhances the firms cost. Even otherwise, since the rate of interest is uncertain, it carries an element of risk with it that the firms have to bear in the absence of any cover. The movement of the LIBOR is not only difficult to predict but also is not related in any way to the operations of the company. Thus, an opposite movement between the two, i.e., LIBOR increasing and simultaneously recessionary trends in the country which decrease the companys revenues, raises the cost of capital for the company at a time when it is least prepared to meet it. If the floating rate is pegged to a base which is more reflective of the economic conditions prevailing in India, then it will reduce the risk to an extent (but not remove it totally). To protect itself against the risk, the firm has to incur a cost associated with hedging against the exposure.

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10.3.5 Managing Exposure Arising from ECBs


A company raising an ECB exposes itself to primarily two kinds of risks: exchange rate risk and interest rate risk. To safeguard its position, the company has to incur a cost so that it is protected from the effects of any adverse movement of the exchange rate or the interest rate. In order to do that, a firm may enter into separate arrangements to hedge against each of these exposures, e.g., a firm that has raised an ECB and has therefore exposed itself to both interest rate and exchange rate movements can adopt the following strategy. It can buy the required dollars in the forward market and enter into an interest rate swap that assures to it the requisite number of rupees required to buy the dollars on the due date. This arrangement may provide the necessary hedge to the firm against both the interest rate and the exchange rate movements but it necessitates two different contracts, more documentation and a greater default risk, since dealing with two parties and also default by either can incur huge damages to the companys interests. Moreover, it depends on the companys ability to enter into forward agreements for all maturities. Since this may not be possible because of regulations to enter into forwards of all maturities, this provides an insufficient hedge especially if the tenure of the loan is long. It can, however, enter into a single contract such as an interest-currency swap whereby at the due dates of interest/principal payment, it gets the required number of dollars against the periodic payment of a fixed rupee liability. Entering into a single such arrangement provides the company a perfect hedge against movements of both the exchange rate and the interest rates but such a contract may prove to be costlier than entering into two single contracts. Financial engineering today provides a company the opportunity to get itself a tailormade cover to meet all its needs, albeit at a cost. The derivatives markets have come out with innovative products, both standardised and customised, tradable as well as nontradable. In nascent markets such as India, the cost of hedge may turn out to be quite high and is an important consideration before any specific arrangements are made. As of now, the significant difference in the ECB and the domestic market coupon rates (about 250300 basis point after providing for hedge) does give the corporates sufficient breathing space while deciding their hedging strategy, but once this large interest rate differential narrows down, the minimisation of costs associated with hedging might become a paramount consideration. Moreover, with the widening and the deepening of the derivatives markets in countries like ours, it is expected that the costs associated with hedging will come down significantly. Companies that have export incomes in currencies of the denomination of the borrowing or have subsidiaries remitting profits to them in these currencies enjoy some distinct

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advantage. First, owing to the similarity in denomination of the assets (receivables, remittances) and the liabilities (interests/principal repayments), the companies are protected from providing for the currency cover in part or in full. Not only this, the export incomes and the remittances are also protected against currency volatility either in totality (if the total receivables are used in meeting the liabilities) or partly (if the liabilities are only a part of the assets or vice versa), thus reducing the hedging requirements (and the costs associated) for inflows. This saving in costs should also be incorporated while evaluating the costs-benefits accruing from the ECB. Thus, it makes a lot more sense for eligible export units as well as parent corporates in India, to borrow in the Euromarkets. Over a period of time the Government has allowed corporates/banks, etc., a lot more freedom in raising/managing an ECB. The banks are allowed to provide for cover in a more liberal manner as well as to introduce more instruments. Swaps are also a recent phenomenon in the country. It has also allowed corporates, who do not have an exposure, because of their operating activities, to assume an exposure and generate cost savings through better exposure management. Companies that have in their books, huge volumes of high cost, domestic debt see this as a great opportunity to pre-pay their high cost debt and replace it with low cost debt from ECBs, thus gaining a reduction in the interest costs. As more and more firms adopt this route, exposure management will receive greater and greater emphasis.

10.3.6 Policy Changes for Encouraging External Commercial Borrowings (ECBs)


The ECB policies have been liberalised with respect to the end use of the funds. ECB funds can now be used to fund certain categories of the Rupee expenditure. Net commercial borrowings in the year 1996-97 amounted to US$ 1.009 billion against the total of US $1.275 billion in the previous year. Although the net borrowing was lower, the disbursement was higher at US $5.732 billion against a total of US $4.252 billion in the previous year. The amortisation was also higher at US $4.732 billion due to the repayment of the India Development Bonds. In April 1998, the ECB policy has been further revised in the wake of the SE Asian crisis and the impact on the international markets. The requirements of having a longer maturity for larger borrowings, caps on the borrowing costs and the restrictions on the end use of the ECB have been relaxed in the wake of the changed market conditions. Modifications have also been made to the ECB policy to provide for easier access to external funds by the Indian industry to support investment and economic activity, and to increase transparency in the procedures. Greater priority will now be given to projects in the infrastructure segment, the core sector and the export promotion.
Table 10.1: Status of the ECB Approvals Sector Power Telecom Shipping Civil Aviation Petroleum and Natural Gas Railways FIs Ports, Roads Others Total 1996-97 1875 289 146 46 783 144 1502 3797 8582 1997-98 3014 1493 210 373 230 179 795 62 2358 8714

Thus, it can be seen that to hedge a risk arising out of an interest liability, a firm can employ a number of strategies. The basic and elementary concept of Swaps is manipulated so as to give a number of ways in which the risk can be hedged. The great number of players in the market ensures that practically no innovation is left unoffered. Straddles, strangles, collars, are only a few strategies that exist and are listed. In the particular exposure illustrated, the company RXY was offered as many as 40 strategies and these were offered by as many as seven banks. But the fact remains that the sheer number of variants possible make it almost impossible to classify them separately. For example, a plain vanilla swap can also be classified as a collar, with the rate payable to the bank being the floor and the cap rate. It thus becomes absolutely essential that treasurers of the hedging firm understand the markets very well if they want to get the best deal from the bank. It is this understanding which will help these treasury managers in negotiating with the banks the best deal for their firm. In fact, in most cases, it is observed, that it is the negotiating skills of the hedging firms managers that gets them the deal most suitable. External Commercial Borrowing (ECB1998-01) Gross aggregate disbursements under external commercial borrowings amounted to US $ 3187 million in 1999-2000. In aggregate terms, this was much lower than US$ 7226 million disbursed in 1998-99. However it may be mentioned that aggregate disbursements for the year 1998-99 include proceeds from Resurgent India Bonds ( (RIBs) worth US $ 4231 million. Exchange RIB accruals, disbursements for 1998-99 are estimated at US $ 2995 million. On a comparative basis, disbursements, therefore, were marginally higher in 1999-2000. Repayments for both years were more or less identical figuring US $2864 million in 1998-99 and US $ 2874 million in 1999-2000. Exchange RIB proceeds, net disbursements at US $ 313 million were higher in 1999-2000, compared to US $ 131 million in 1998-99. In the first-half of the current year (April-september,2000), repayments (US $ 2465 million) have exceeded disbursements (US $ 2360 million), resulting in net repayments of US $ 105 million. The comparative estimate for April - September, 1999 was net disbursement of US$ 80 million. Though disbursements in the current year (US$2360 million ) are higher than the comparable period of the previous year (US$ 1387 million ), the repayments in the current year are above those in the same period of the previous year (US$1307 million). As a result there has been a net repayment in the first-half of 2000-01 as against net disbursement during the corresponding period of 1999-2000. Despite a marginal improvement in the volume of disbursement in the current year, ECB accruals continue to be low. The reasons behind the low mobilisation can be traced, inter alia, to hardening of international interest rates (particularly US dollar denominated) and the relatively sluggish demand of domestic industry industry for investment. ECB approvals are also exhibiting a declining trend in the current year. As in the previous years, the power sector has received the highest ECB approvals during the current year. Petroleum and natural gas, shipping and financial institutions have been the other major recipients. The amounts raised by Indian corporates under the "structured obligation window" is higher during the first three (quarters) of the current year (2000-01) as compared to the total approvals given under this window during 1999-2000. While total approvals under the window during 1992 amounted to US$ million, during the current financial year (as on December 31, 2000), total approvals have amounted to approximately US$ 1090 million.

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Table 10.2: Status of ECB Approvals


(US$ million) Sector Power Telecom Shipping Civil Aviation Petroleum & Natural Gas Railways Financial Institution Ports, Roads etc. Others (including exporters) Approval given by RBI Amount raised under auto-route facility Total
* As on 31-12-2000.

1998-99 3998 75 37 0 40 15 150 0 885 0 0 5200

1999-2000 2267 0 27 0 218 0 125 80 129 552 0 3398

2000-01* 375 0 144 0 150 0 70 0 60 602 318 1719

A series of policy liberalisations have been effected for further facilitating the use of External commercial borrowings as a window for resource mobilisation. Some of these measures are as mentioned : Fresh ECB approvals up to US $50 million and all refinancing of existing ECBs have been placed under the automatic route. Under this arrangement, any corporate being a legal entity, registered under the Companies Act, Societies Registration Act, Cooperative Societies Act, including proprietorship/partnership concerns, will henceforth be eligible to enter into loan agreement with overseas lender for raising fresh ECB for an amount up to US and 50 million, or for refinancing an existing ECB, provided it is in compliance with the ECB guidelines. The corporates would not be required to obtain prior approvals for raising ECBs up to US $ 50 million or for refinancing of existing ECBs. The RBI has been delegated the authority to sanction fresh ECB approvals up to US $ 100 million. RBI has also been delegated the power to approve prepayment as per the prevailing guidelines. The existing all-in cost ceilings for normal projects, infrastructure project and longterm ECBs are now 300,400 and 450 basis points over 6 months LIBOR, for the respective currency in which the loan was to be raised, or applicable bench marks as the case may be. The average maturity for the purpose of ECB guidelines has been declared to be the weighted average of all disbursements, taking each disbursement individually and its period of retention by borrowers. Corporates, having underlying exposures in respect of crude and petroleum products, have been permitted to hedge commodity price risk subject to detailed guidelines of the RBI.

10.3.7 Euro Debt


External Commercial Borrowings (ECBs) are defined to include: 1. 2. 3. 4. 5. 6. 7. Commercial bank loans. Buyers credit. Suppliers credit. Credit from official export credit agencies. Securitised instruments such as fixed rate notes and floating rate bonds. Commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC, etc. Various forms of Euro bonds and Syndicated loans.

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Here we will only analyse the long-term sources of finance and hence will concentrate only on the last mode. Check Your Progress 1 State whether the following statements are True or False: 1. 2. 3. 4. The underdeveloped and the developing economies require external assistance due to the shortage of capital within the country. The scarcity of domestic capital resources hinders a high rate of capital formation. The rate of savings is low because the income levels are at a low level and whatever small savings are possible, they are very difficult to mobilize. A company raising an ECB exposes itself to primarily two kinds of risks: exchange rate risk and interest rate risk.

10.3.8 Foreign Currency Convertible Bonds (FCCBs)


The instrument floated by the Indian companies are commonly referred to as Foreign Currency Bonds (FCCBs). FCCBs are basically equity linked debt securities, which are converted to equity or Depository Receipts after a specific period. In India, conversion of a Fully Convertible Debenture of a Partially Convertible Debenture is forced, since the conversion date and price are fixed in advance. However, in case of FCCBs, the holder has the option of converting them into equity (normally at a predetermined exchange rate), or retaining the bond. Because of this facility, FCCBs carry a lower rate of interest than the rate on any other similar non-convertible debt instrument. FCCBs are freely tradable and the issuer has no control over the transfer mechanism, since, like GDRs, they are bearer securities, with no registration of owners. However, Convertible Bonds issuance is concentrated only in a few currencies. Of the major currencies, the US dollar accounts for more than half the issuance of FCCBs. The British pound sterling, French franc and Japanese yen together account for around a quarter of the current outstandings in global markets, but they are primarily for domestic markets and attract very little international interest. The Swiss franc is an important niche market, accounting for more than 10 per cent of the outstanding issuance and offers low coupon structures, especially for relatively small amounts and for Asian issuers.

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Convertibles are more beneficial for the issuer than a GDR because of the following characteristics: i. ii. iii. iv. They have a lower coupon than straight debt. They provide a broader investor base, i.e., both, those who invest in debt as well as in equity. They allow a higher premium to the issuer than a GDR. Dilution of equity is not immediate, but deferred.

The disadvantages of convertibles when compared to GDRs are the need for debt servicing in foreign currency and the exchange risks associated with it and to leverage before conversion. Pure Euro Debt Pure Euro Debt is generally raised through Syndicated Loans or Private Placements. Very few Indian companies have issued Euro debt to the general public. The reasons for this are the higher cost of raising funds (when compared to Syndicated Loans or Private Placement) as well as servicing the debt and the exchange risk associated with the payments. Also, very few investors would be interested in investing in an Indian company, which would be graded very low, in spite of the higher coupon offered to them. In Syndicated Loans, the company which wishes to raise funds, appoints a Lead Manager and it is the responsibility of the Lead Manager to form a syndicate of banks and/or other Financial Institutions (FIs) who combine to raise the amount needed by the company. For instance, The Tata Iron and Steel Company (TISCO) raised a loan of $150 million recently in March, 1997, wherein the Lead Managers were State Bank of India, ANZ Grindlays Bank and HSBC Markets, who, among themselves contributed only $6.5 million and the rest was contributed by a syndicate of 21 other banks, which was formed by the managers. Syndicated Loans are usually given at a floating rate of interest, where the 3 or 6 months LIBOR is taken as the benchmark and the interest is fixed at certain basis points above this rate. The tenors can extend up to 10 years and repayment is fixed in any profile bullet or amortising. No listing is required. The loan may be secured or unsecured. These loans are typically given by banks and are not traded in the capital markets. The various types of bonds for the general public, which have evolved over time, are listed below: i. Deep Discount Convertibles: These are also known as Zero Coupon Convertible Bonds. They are issued at a discount to the par value and mature at par value. Thus, they have no or very low interest payments. Bunny Bonds: These bonds permit investors to reinvest their interest income into more such bonds with the same terms and conditions, thus compounding their earnings. Bulldog Bonds: These are denominated in pounds sterling for UK investors by a non-UK entity. Yankee Bonds: These are dollar denominated issues, aimed at US investors, floated by a non-US entity. Samurai Bonds: These are long-term domestic yen debt issues targeted at Japanese investors by non-Japanese companies. Dragon Bonds: These are issued in dollars, yen and other currencies, to lure Asian investors.

ii.

iii. iv. v. vi.

Apart from these, issuers can make their offerings more attractive through additional sweeteners in the form of equity warrants, options, etc. Each new combination can be termed as a new instrument. Indian companies are, however, not permitted to issue warrants along with their Euro issues. Characteristics of Euro Debt The pricing of ECB loans is like the U-curve. For small loans (up to $3 million) the interest rates are high. This is because of the high proportion of fixed costs towards clearing the loan proposal. As the size of the loan increases to $15 to $18 million, the interest rates decline. In case of big loans, they rise again due to the higher risk perception of the lender and larger syndication cost. So, in case of small loans, the interest is fixed at about 50100 basis points above LIBOR, while for medium-size loans, they fall to 35 45 basis points above LIBOR, and rise again for large loans to more than 100 basis points above LIBOR.

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10.3.9 Advantages of Euro Issues


(i) Advantages in Holding Global Depository Receipts: GDRs offer the following advantages to an investor over direct investment: 1. GDRs are bought and sold in international stock exchanges. Hence, the investor can utilise the services of international settlement systems instead of the home countrys, which might be outmoded and inefficient. Dividends are paid in dollars instead of the home countrys currency, which might be weak. GDRs listed on internationally recognised stock exchanges may facilitate investment even by those investors who may be restricted from holding such securities on minor exchanges. Use of GDRs sometimes permits investments by non-resident investors in jurisdictions which restrict foreign investment in local shares. Rights issues and other corporate actions, voting at shareholder meetings, dividend disbursements, etc., are handled by the depository bank. The GDR certificates are in bearer form; hence the holder need not declare his name, which is mandatory in case of domestic shareholding.

2. 3.

4. 5. 6. (ii)

Advantages to the Issuer: The main advantage to the issuer is that he does not assume any exchange risk, though he does enjoy the benefit of foreign exchange collected by way of issue proceeds. The dividend outflow from the company is only in rupee terms, since it is the responsibility of the overseas depository bank to convert this into dollars and pay to the ultimate investors, after deducting a withholding tax of 10%. GDRs enable an issuing company to place its equity in a foreign market, thereby internationalising the profits of its company in the investor base, and at the same time expanding its name recognition. GDRs can also be used as a vehicle for corporate acquisition. Moreover, one of the major benefits of a GDR issue to the issuer company is the ability to raise funds at a lower cost. The cost of raising funds in the Euro market is approximately 35% of the issue amount (depending upon the size of the issue); as against this, domestic issues cost anywhere between 8-14% of the issue size. A Euro issue can be priced at par or at a slight premium to the domestic price, unlike domestic issues, where justification of the premium demanded has to be mandatorily given in the issue prospectus.

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Advantages of Euro Debt 1. 2. The major benefit of a Euro loan for a company is the availability of foreign exchange at a reasonable cost. Low cost of funds is one of the major benefits of a Euro loan for a company. Average coupon rates on convertibles of five years maturity range from 2.5 to 4%, as against the domestic rates of above 15% per annum. In the case of pure debt, most deals are stuck between 50200 basis points above LIBOR. As the LIBOR for the US dollar stands at around 6%, interest cost works out to between 6.58%. To be added to this is the exchange risk cost for the depreciation of the Indian rupee vis--vis the US dollar. In the worst case, this would amount to 67% per annum. This implies a total cost of 12.515% per annum (in a worst case scenario), which is still lower than the minimum rate of about 16% charged by Indian FIs. 3. 4. 5. In most cases, companies are exempted from paying withholding taxes (@10% of interest amount), thereby saving a further 1.251.5% on interest costs. The $3 million scheme enables corporates to borrow their entire funds requirement from one banker only, thereby saving syndication expenses on the loan. Euro loans enable a company to raise funds from a foreign market, thereby internationalising the profile of the company in the investor base, and at the same time, expanding its name recognition. In India, term-lending institutions impose severe restrictions in the loan agreements which restrict managerial authority of the company to a large extent. Lenders in the Euromarkets offer an opportunity to the companies to raise loans without any significant loss of managerial discretionary powers, except for the negative lien which companies have to mandatorily offer. Exporters can look for borrowing in the international markets as a natural hedge against their outstanding positions. Thus, they can issue bonds denominated in a currency in which they would gain their export earnings, and offset their exchange risk. External finance is generally provided for longer tenors, and can flexibly be structured to suit the convenience of the borrower and/or the lender. It is a significant alternative mode of financing when local debt is unavailable (especially in case of a liquidity crunch as experienced by the Indian economy in the past few years).

6.

7.

8. 9.

Advantages of Euro Convertibles Convertible Bonds enjoy the advantages of both debt and equity, since they are treated as debt before conversion and equity afterwards. Thus, they enjoy the advantages of Euro loans before conversion and the advantages of GDRs afterwards. Common Benefits to All Issuers of Euro Paper Apart from the above, there are certain benefits which accrue to companies which raise funds from global offerings through any of the following waysbe it equity, debt or convertibles. These are listed below: 1. 2. An issuer company has the benefits of getting its name internationally recognised and enlarge its reach to the global markets. International listings and trading and settlement systems provide easy liquidity, thus endearing them to buyers.

3. 4.

International investors get an opportunity to diversify their risk by investing in companies from different countries. Investment by local individuals and institutions helps the company in mobilising the support of local political authorities for setting up joint ventures, subsidiaries, manufacturing bases and export bases, etc., in those countries, through strong ties with its local investors.

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10.3.10 Performance of Indian Euro Issues


From May 1992 onwards, Indian companies have been issuing Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds/Euro Currency Bonds (FCCBs/ECBs) on the Euro market on a large scale. Up to March 1996, Indian companies had raised US $5,180 million through 64 issues of GDRs and ECBs. The first GDRs were issued by Reliance Industries Limited (RIL) in May, 1992 with an issue size of US $150 million at an issue price of US $16.35, thus issuing 9.2 million GDRs, each of which represented 2 underlying equity shares of the company. At that time, the market for Indian issues was so underdeveloped that RIL had to give GDRs at a discount of up to 17%, in order to get the issue fully subscribed. The first FCCB was raised by Essar Steel in July, 1993. The amount raised was US $75 million at a coupon rate of 5.5% at a price of US $ 100 per bond. These bonds were to be converted into 50.43 equity shares per bond. This is the highest coupon paid by any Indian issuer till date. It was necessary for Essar to pay this rate in order to get full subscription. However, Indian paper could not attract many investors in the beginning. This trend continued in 1992 and the first-half of 1993. However, later, as the economy opened up and more companies came out with issues for the global markets, more and more investors looked at India as an alternative investment avenue among developing countries and the market for Indian Euro issues picked up. This was helped by the fact that Lead Managers got larger commissions on the sale of Indian paper, since India was seen as a high risk investment. The first major success among Indian Euro issues was the Shipping Credit and Investment Corporation of India (SCICI) $100 million FCCB issue in October, 1993, which was priced at par (without any discount) and still got over subscribed by 10 times. There was no stopping the Indian corporates after that, as many more issues hit the Euromarkets. The total amount of money raised by Indian companies through the GDR route equalled US $ 5,425.9 million, while that through the ECB route US $ 1,035.5 million till the end of financial year 1995-96. Most of these securities are listed in Luxembourg. The following table traces the development of Euro issues in India, since inception:
Euro Issues (US$ Million) GDRs ECBs Total 1992-93 240 240 1993-94 1597 896 2493 1994-95 2050 102 2152 1995-96 1152 1152

Guidelines issued by the Finance Ministry in October, 1994, had specified that proceeds of Euro issues of Indian companies should be kept abroad till they were ready to be deployed for specific projects. This was done in order to curtail the supply of dollars, which was appreciating the Indian rupee, consequently hurting Indias export competitiveness. However, during January, 1995, the RBI stated that these proceeds could be deposited in foreign branches of Indian companies or foreign banks, which are

222 International Financial Management

rated for short-term obligations. The fund could also be invested in treasury bills, or high quality commercial paper, having a maturity of less than one year. This provided the much-needed fillip to the Euro issue market, which was then languishing due to regulatory restrictions combined with a sluggish domestic capital market.

10.4 SHORT-TERM INSTRUMENTS


Short-term instruments in international financial market include: The trade in short-term, low-risk securities, such as certificates of deposit and U.S. Treasury notes. A mutual fund that sells its shares in order to purchase short-term securities, the income from which is distributed among shareholders in the form of additional shares in the fund. Also called money market fund. Short-term ("money market") negotiable debt securities such as T-Bills (issued by governments), Commercial Paper (issued by companies) or Bankers Acceptances. These are much like bonds, differing mainly in their maturity "Short-term is usually defined as being up to 1 year in maturity. "Medium-term" is commonly taken to mean from 1 to 5 years in maturity, and "Long-term" anything above that. Treasury Bills: Short-term zero coupon US government obligations, generally issued with various maturities of up to one year. Also known as T-Bills. Short-term Income Funds: These schemes invest in short-term money market instruments and corporate bonds. The objective of these schemes is to provide a higher current income than liquid funds but without compromising the liquidity. The ideal investment horizon is 1 month to 3 months. Check Your Progress 2 State whether the following statements are True or False: 1. 2. 3. 4. 5. More and more Indian corporates are finding the route of raising money through ECBs very attractive. A dual currency bond is a Euro bond dominated in one country, but the interest is payable in another currency. A floating rate Eurocurrency note is a note which carries a coupon rare which is linked to a benchmark and which is adjusted periodically. The term Eurodollar does not refer to US dollars accumulated over the years by European banks and other banks outside the United States. The floating feature in effect, splits the interest rate risk between the borrowers and the investors.

10.5 MEDIUM TERM INSTRUMENTS


A Medium Term Note (MTN) is a debt note that usually matures (is paid back) in 5-10 years, but the term may be as short as one year. They're normally issued on a floating basis such as Euribor +/- basic points. When they are issued in euro they are "Euro Medium Term Notes". Serial Bond: A bond issue in which a portion of the bonds are scheduled to be retired at regular intervals over a period of years. Serial bonds are issued when the underlying security for the bonds depreciates through use or obsolescence. The maturities of the bonds are scheduled so that at any time, the bonds still outstanding will not exceed the declining value of the security.

Medium-Term Income Funds: These schemes invest in medium-term treasury bills and corporate bonds. The objective of these schemes is to provide a higher current income than short-term income funds with reasonable liquidity. The ideal investment horizon is 3 months to 6 months. Stripped Mortgage Backed Securities: Mortgage pass-through securities in which the cash flow from the underlying mortgages is separated. All principal is diverted into securities that pay only principal back to the investors, while all interest is diverted into securities that pay only interest. The interest-only (IO) and principal-only (PO) securities are used as hedging tools to provide greater stability for mortgage portfolios during periods of fluctuating interest rates. Municipal Bonds: A tax exempt debt obligation issued by a state or local government agency to raise funds for the public good, such as building low-income housing, improving streets or building bridges. The bonds are redeemed with interest and are backed by the government's taxing authority. Treasury Bonds: Long-term (more than ten years) obligations of the US government that pay interest semiannually until they mature, at which time the principal and the final interest payment is paid to the investor. Also known as T-Bonds. Treasury Notes: Same as Treasury Bonds except that Treasury Notes are mediumterm (more than one year but not more than ten years). Structured Notes: Non-mortgage-backed debt securities, whose cash flow characteristics depend on one or more indices and/or have embedded forwards or options. Bootstrapping: In finance, bootstrapping refers to the procedure used to calculate the zero coupon yield curve, solving for the maturities where no instruments are available. The method uses interpolation to complete the yield curve, using available zero coupon securities with varying maturities. Swap: A financial contractual agreement between two parties to exchange (swap) a set of payments that one party owns for a set of payments owned by the other party. Two kinds of swaps are, currency swaps and interest-rate swaps. Securitized Bond: Bonds, whose interest and principal payments are backed by the cash flows from a portfolio or pool of other assets, are called securitized bonds. Securitization allows for an organization (such as a bank) transfer risk from its own balance sheet to the debt capital markets through the sale of bonds. For example, a mortgage bank might use the cash inflows on its current mortgage book, to issue bonds. The cash raised from the sale of these bonds would then be used to issue new mortgages. This process is cyclic allowing the mortgage bank to increase its operational leverage. This type of securitization is known as a Mortgage Backed Security (MBS). Bid Bond: A type of surety bond wherein the surety company guarantees the bidder will enter into a contract and furnish the required payment and performance bonds. Basket: A basket is an economic term for a group of several securities created for the purpose of simultaneous buying or selling. Baskets are frequently used for program trading. Baby Bonds: A name given to the Series A-1935 savings bond, but carried over to Series B-1936, C-1937 & 1938, and D-1939, 1940, & 1941 (through April) savings bonds. Bilateral Investment Treaty: A Bilateral Investment Treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in the state of the other. This type of investment is called Foreign Direct Investment (FDI).

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224 International Financial Management

Swift: The Society for Worldwide Interbank Financial Telecommunication ('SWIFT') runs a worldwide network by which messages concerning financial transactions are exchanged among banks and other financial institutions. As of December 2001 it linked over 7,000 financial institutions in 194 countries and estimates that it carries payment messages averaging more than six trillion US dollars per day. Bearer Instrument: A bearer instrument is a document that indicates that the bearer of the document has title to property, such as shares or bonds. Bearer instruments differ from normal registered instruments, in that no records are kept of who owns the underlying property, or of the transactions involving transfer of ownership. Whoever physically holds the bearer bond papers owns the property. This is useful for investors and corporate officers who wish to retain anonymity, but ownership is extremely difficult to recover in event of loss or theft. In general, the legal situs of the property is where the instrument is located. Bearer instruments can be used in certain jurisdictions to avoid transfer taxes, although taxes may be charged when bearer instruments are issued. Bankers Acceptance: A draft or bill of exchange accepted by a bank where the accepting institution guarantees payment. Used extensively in foreign trade transactions.

10.6 LET US SUM UP


The Eurobond market has become popular and has flourished in the last few years due to several unique features that sets it apart from the domestic and foreign bond market. More and more Indian corporates are finding the route of raising money through ECBs very attractive. The existence of lower cost of funds in these markets in spite of the currency differential and the costs associated with hedging the exposure as compared to the high costs prevailing in the domestic market have made these markets the darling of eligible Indian companies. Companies which meet the RBI guidelines raise funds in these markets more as a matter of rule rather than exception. ECBs may be raised from any internationally recognised source such as banks, export credit agencies, foreign collaborator etc. There are two kinds of risks involved in ECBs interest rate risk and exchange rate risk. Companies must manage the exposure arising due to adverse changes of exchange rates or the interest rates to safeguard their position. Differentials in yields among Euro bonds denominated in different currencies have been known to exist beyond what can be reasonably explained by exchange rate expectations. Moreover, these differentials, unlike differentials in money market yields, persist for long periods as they are not easily arbitragable as the latter. The differentials are also due, in part, to such factors as political risk and capital market segmentation. Nevertheless, market forces, if unobstructed, tend to produce an alignment, albeit less close than in the money market, between the yield on a Eurodollar bond and a dollar bond of the same grade risk and maturity. The term Eurodollar refers to US dollars accumulated over the years by European banks and other banks outside the United States. Since these dollars are outside the jurisdiction of the United States government, the European banks are free to deal in them without any restriction. In addition to the US dollars acquired by banks with their own or foreign currency, Eurodollars also come into existence when a domestic or foreign holder of dollar-demanddeposits in the United States places them on deposit in a bank outside the United States.

10.7 LESSON END ACTIVITY


Write a note on Eurocurrency and Eurobond market.

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10.8 KEYWORDS
Foreign Bonds: These are the bonds floated in a particular domestic capital market (and in the domestic currency of that market) by non-resident entities. Euro Bond Market: Euro Bonds are unsecured debt securities issued and sold in markets outside the home country of the issuer (borrower) and denominated in a currency different from that of the home country of the issuer. ECB: The governments, therefore, allow the corporate sector to access funds from abroad in the form of External Commercial Borrowings (ECB). Foreign Currency Convertible Bonds (FCCBs): The instrument floated by the Indian companies are commonly referred to as Foreign Currency Convertible Bonds (FCCBs). Deep Discount Convertibles: These are also known as Zero Coupon Convertible Bonds. They are issued at a discount to the par value and mature at par value. Thus, they have no or very low interest payments. Bunny Bonds: These bonds permit investors to reinvest their interest income into more such bonds with the same terms and conditions, thus compounding their earnings. Bulldog Bonds: These are denominated in pounds sterling for UK investors by a nonUK entity. Yankee Bonds: These are dollar denominated issues, aimed at US investors, floated by a non-US entity. Samurai Bonds: These are long-term domestic yen debt issues targeted at Japanese investors by non-Japanese companies. Dragon Bonds: These are issued in dollars, yen and other currencies, to lure Asian investors.

10.9 QUESTIONS FOR DISCUSSION


1. 2. 3. 4. 5. 6. 7. 8. What is meant by International Financial Markets? What are the reasons for the existence of the Eurodollar market? Can the Eurocurrency create money? What are the problems created by the existence of the Eurocurrency market? What are some of the important benefits that result from this market? What are the necessary conditions for the existence of a Euromarket? Do you expect the Eurodollar to exist 10 years from now? Why or why not? Briefly describe the characteristics of the Eurodollar market. List the major advantages of Euro issues to Indian companies. Has the performance of Indian Euro issues been satisfactory? Why or why not? What is the International Bond Market? Enumerate the important features of this market. Why do companies go in for External Commercial Borrowings (ECBs)? What are the risks involved in issuing ECBs?

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Check Your Progress: Model Answers


CYP 1 1. 2. 3. 4. True True True True

CYP 2 1. 2. 3. 4. 5. True True True False True

10.10 SUGGESTED READINGS


Madhu Vij, International Financial Management, Excel Books, New Delhi, IInd Edition, 2003. V. Sharan, International Financial Management, 4th Edition, Prentice Hall of India. Alan. C. Shapiro, International Financial Management, PHI. Levi, International Finance, McGraw Hill International Series. Adrian Buckly, Multinational Finance, PHI.