Chapter 09 PDF

International Finance
“INTERNATIONAL EQUITY
MARKET”
Learning Objectives
After completing this chapter, you should be able to understand:
What do you mean by Foreign Capital

International Equity Capital
Global Depository Receipt
American Depository Receipt
Indian Depository Receipt
Foreign Direct Investment
Foreign Portfolio Investment
Hot Money
Participatory Notes
“International Equity Market”

Structure
9.1 Introduction to Foreign Capital

9.2 Need for Foreign Capital
9.3 International Equity Market
9.4 Concept of Depository Receipt
9.5 Global Depository Receipt (GDR)
9.6 American Depository Receipt (ADR)
9.7 Comparison Between Different Levels of ADR
9.8 Advantages of ADRs and GDRs
9.9 Distinction Between GDR & ADR
9.10 Indian Depository Receipt
9.11 Foreign Currency Convertible Bonds (FCCB)
9.12 Foreign Currency Exchangeable Bonds (FCEB)
Structure
9.13 Distinction Between FCCB and FCEB

9.14 Distinction Between FDI & FPI
9.15 Hot Money
9.16 Participatory Notes
9.17 Fungibility
9.18 Foreign Direct investment in India
9.19 Factors Contributing to the Slow Flow of FDI into
India
9.20 Foreign Investment Promotion Board (FIPB)
9.21 Foreign Investment Promotion Council (FIPC)
9.22 Summary
9.23 Self Assessment Questions
9.1 Introduction to Foreign Capital
Foreign capital refers to the investment of capital by a

foreign government, institution, private individual and
international organization in a country.
Foreign capital includes foreign aid, commercial
borrowing and foreign investment. Foreign aid
includes foreign grants, concessional loans etc.
Foreign capital is invested in the form of foreign
currency, foreign machines, and foreign technical
know-how.
Foreign Collaborations
Foreign capital Loan in Foreign Currency
Investment in Equity Capital
Increase in resources:
Foreign capital not only provides an addition to the
domestic savings and resources, but also an addition
to the productive assets of the country. The country
gets foreign exchange through FDI. It helps to increase
the investment level and thereby income and
employment in the recipient country.
Risk taking:
Foreign capital undertakes the initial risk of
developing new lines of production. It has with it
experience, initiative, resources to explore new lines. If
a concern fails, losses are borne by the foreign
investor. “International Equity Market”
Technical Know How:

Foreign investor brings with him the technical and
managerial know how. This helps the recipient country
to organize its resources in most efficient ways i.e. the
least costs of production methods are adopted. They
provide training facilities to the local personnel they
employ.
High Standards:
Foreign capital brings with it the tradition of high
quality, higher real wages to labour and sound
business practices. This serves the interest of the
investor and brings up quality / efficiency of local
enterprises. “International Equity Market”
Marketing facilities:
Foreign investor provides new marketing outlets, starts
imports and exports among units located elsewhere.
Reduces trade deficits:
Foreign capital helps host country to increase exports
by raising quality and lowering costs and thereby,
reduce trade deficit.
Increases competition:
Foreign capital may help to increase competition and
break domestic monopoly. Foreign capital is a good
barometer of world’s perception of a country’s
potential.
9.3 International Equity Market
Until the end of 1970’s, international capital market

mainly focused on debt financing, but equity financing
was raised only by corporates in the domestic markets
as there were restrictions on cross border equity
investments.
Early 1980’s witnessed Liberalization and
Globalization of many domestic economies. This gave
a boost to the developing countries where issue of
dollar or foreign currency denominated equity shares
were not permitted. Now they are able to access
international equity markets through Depository
Receipts.
1. A Depository Receipt is a negotiable certificate

issued by a depository bank that represents the
beneficial interest in shares issued by a company.
2. These shares are deposited with a local custodian
appointed by the depository, which issues receipts
against the deposit of shares. Each of these
depository receipts represents a specified number
of shares in the domestic market.
3. According to the placement planned, depository
receipts are classified into three categories, as
follows.
American Depository Receipt (ADR)

which are issued only to
investors in America

4. The main objectives of a company going for an

international capital market are:
1. the size of the fund that can be raised.
2. currency choice.
3. large shareholder base
4. international brand image ; and
5. presence that emerges out of the issue.

9.5 Global Depository Receipt
(GDR)
GDR is a negotiable instrument in

the form of depository receipts or
certificate created by the overseas
depository bank outside India and
issued to non-resident investor
against the issue of ordinary shares
of Foreign Currency Convertible
Bonds (FCCB) of the issuing
company.
A. The Characteristic Features

GDR’s are issued to investors in more than one
country and may be denominated in any acceptable
freely convertible currency.
The equity share holder may deposit the specified
number of shares and obtain the GDR and vice versa.
A typical GDR is denominated in any foreign currency
whereas the underlying shares would be denominated
in the local currency of the issuer. The holder is
entitled to the dividend, bonus on the value of shares
underlying the GDR.
A. The Characteristic Features- contd.

GDR may be, at the request of the investor, converted
into equity shares by cancellation of GDR’s through
the intermediation of the depository and the sale of
underlying shares in the domestic market through the
local custodian. This provision can be used after a
‘cooling off’ period of 45 days from the date of issue.
GDR’s are considered as common equity of the issuing

company. The company effectively transacts with only
one entity; i.e. the overseas depository for all its
transactions.
A. The Characteristic Features- contd.

The foreign currency funds acquired by the company
through a GDR issue are permitted to be used for any
normal business activity, but cannot be used for
trading in international securities or real estate.
Indian companies with good financial track record of

three years are readily allowed access to international
markets through such issues. Clearances are required
from the Foreign Investment Promotion Board (FIPB)
and the Ministry of Finance.

B. Advantages of a GDR issue:

GDR holders do not acquire voting rights and,
therefore, the promoters are not in the danger of
losing management control.
Companies having international operations are able to
build brand image which helps in their marketing
efforts.
Investors have the benefit of having access to good
quality companies in other countries without political
risk, operational risk and excessive regulatory control.
9.5 Global Depository Receipt
(GDR)
B. Advantages of a GDR issue:

contd.
Through a GDR issue the company is
able to create a potential demand
for its shares at the international
level which results in higher
valuation for its shares in the
domestic market. This increases
company’s P/E ratio which in turn
reduces the cost of capital.
It’s a nine step
# C. Mechanism of Issue: process.
9 Listing on #
Stock # 8
Exchange 4 Investor /
#
6 Custodian Depository Bank Deposit Receipt
Holder
Bank
#
2
Lead Manager
# #
1 3
Issuing Company Book Runners

C. Mechanism of Issue: contd.
Step 01: The domestic company wishing to issue

equity shares favoring international investors is called
‘The Issuing Company’
Step 02: The issuing company appoints an

international merchant bank to act as a lead manager
required to market the issue to international investors
by conducting “Road Shows” with respect to
background, financial status and future prospects of
the issuing company.
Step 03: After the road shows the lead manager

arranges “book runners” who are specialized agencies
for establishing and analyzing investor response to the
issue, the purpose being to help the issuing company
to price the issue at an appropriate level.
Step 04: After issue price is decided, the lead
manager collects subscription money from potential
investors and after deducting their fees transfers the
collected amount to the depository bank.
Step 05: The issuing company now issues physical

shares in favour of the depository bank.
Step 06: These shares issued in favour of the
depository bank are submitted with the domestic bank
of the issuing company which is also called custodian
bank.
Step 07: The custodian bank then confirms the
receipt of underlying shares issued by issuing
company in favour of depository bank.
Step 08: As soon as depository bank receives the

confirmation from the custodian bank, it issues GDR’s
to the investors /deposit receipt holders.
Step 09: The issuing company helps the depository

bank to arrange listing of the GDR’s. Most Indian
companies list the GDR’s on the international stock
exchanges in London, and Luxemburg.
This helps investors to freely trade on GDR’s.

D. Participants Involved in GDR Issue:
Brokers Investment
Bankers
Issuing
Depository Lawyers
Company
Custodian Accountants

D. Participants Involved in GDR Issue: contd.
1. Issuing Company-
1. Determine financial objective.
2. Appoint depository bank, lawyer, investment
bank and accountants.
2. Lawyers-
1. Advise on applicable securities laws and related
matters.
2. Advise on GDR program (legal) structure.
3. Investment Bankers
1. Lead underwriting process.
2. Establish syndicate of participating bankers.
4. Depository Bank-
1. Advise on GDR program structure.
2. Appoint local custodian.
5. Custodian Bank-
1. Act as a local market agent for the depository.
2. Receive and hold deposits of underlying
ordinary shares for GDR issuances.

6. Accountants –
1. Prepare financial statements in accordance
with relevant international accounting
standards, review and audit offer circular of
financial disclosure.
7. Brokers –
1. Make GDRs available to qualifying investors

Till 1990s the companies had to issue separate

depository receipts for markets in each country, ADR
for US and EDR for European market.
There was no cross border trading possible, as ADRs
and EDRs could be traded, settled and cleared in US
and European markets respectively.
However, since 1990, non-US companies could raise
capital in the US market with registration with SEC
(Securities Exchange Commission).
ADR is a dollar denominated negotiable certificate that
represents a non-US company in US the market. They allow
US citizens to invest in overseas securities.
ADRs can be diagrammatically represented as follows:

Types of ADR
A B
Un-
Sponsored
Sponsored
B B B B
1 2 3 4
Level 1 Level 2 Level 3 Restricted
B4a B4b
Regulation
Section 144A
“S”
A Unsponsored ADR:
Unsponsored ADRs are issued by one or more
depository banks based on market demand.
Unsponsored ADRs are issued without the cooperation
of the foreign company, but it has to be reporting
company as per US Exchange Act of 1934.
B Sponsored ADR:
B
Sponsored Level 1 ADR Program:
1
This is the first step for an issuer. In this instrument
only minimum disclosure is required by the SEC. The
issuer is not allowed to raise fresh capital or list itself
on any of the National Stock Exchanges.
B Sponsored ADR:
B
2 Sponsored Level 2 ADR Program:
The Company is allowed to enlarge the investor base

for existing shares to greater extent. But significant
disclosure has to be arranged. The Company now can
test itself on American or New York Stock Exchange.
B
Sponsored Level 3 ADR Program
3
This level is to raise fresh capital through public

offering in the US capital market.
B Sponsored ADR:
B
4
Restricted ADR
In addition to the sponsored ADR issues a company

can also access the US and other capital markets
through ADR program falling under rule 144 or
regulation ‘S’ of the SEC.
These issues have certain limitations in terms of

target investors etc.

B
Restricted ADR
4 B4
Rule 144:
a
This rule provides for raising capital through private
placement of ADRs with large institutional investors
called qualified institutional bodies (QIB’s). Such
issues operate at Level 1 status and do not require
fulfillment of GAAP standards.
B4
Regulation ‘S’:
b
Regulation ‘S’ provides for raising capital through the
placement of ADR’s to offshore non-US investors.
Section ‘S’ of the SEC regulation permits ADR’s to be
issued to individuals and corporate entities without
any restrictions outside the US
PARTICULARS Level 1 Level 2 Level 3
Trading Pattern Only on OTC market Listing allowed Listing allowed

on stock on stock
exchanges in exchanges in
the US the US
Registration with ADR’s are registered Both ADRs and Both ADRs and
SEC but underlying shares underlying underlying
are not registered. shares shares
registered registered

- contd.
PARTICULARS Level 1 Level 2 Level 3
Adherence to Only nominal Partial Full

GAAP norms fulfillment compliances compliance
Disclosure Limited Stringent Very

norms stringent
Capital raising No public issue. Public issue Public issue

Only private without fresh with fresh
placement capital. capital.

ADVANTAGES TO THE ISSUING COMPANIES
i. Provides access to the more liquid markets.

ii. Provides funds at lower costs and better terms.
iii. It expands the investor base for the issuing
company.
iv. Establishes name recognition for the company in
new capital markets.
v. Provides marketing advantages due to improved
brand image.
vi. Source for foreign currency resources for overseas
acquisitions, joint ventures, import financing,
project funding, etc.
ADVANTAGES TO THE INVESTORS
i. Access to the best investment possibilities across

the world.
ii. It is an easy and cost effective way for individuals
to hold and own shares in a foreign company.
iii. The mechanism helps investors to avoid foreign
procedural hurdles and clearances.
iv. Means of wealth protection and investment
diversification.
v. Hedge against adverse development in domestic
economy.
No Global Depository Receipts American Depository Receipts
1 Can be denominated in Can be denominated only in

any freely convertible US dollars.
currency.
2 Can be issued to investors Can be issued only to
in one or more markets investors resident in the US.
simultaneously.
3 Depository bank can be Depository bank needs to be

any international located in the US
investment bank
No Global Depository Receipts American Depository Receipts
4 Issue does not require Issues require approval from

foreign regulatory the Securities and Exchange
clearances Commission(SEC) of the US
5 There is no sub- They are sub-classified in
classification in this terms of the level of clearance
instrument. of the SEC
6 GDRs are normally co- In many cases ADR’s are co-
related to equity shares of related to equity shares of the
the issuing company company expressed as a
expressed in whole fraction.
numbers.
9.10 Indian Depository Receipt (IDR)
IDR’s are financial instruments that allow foreign

companies to mobilize funds from Indian markets by
offering entitlement to foreign equity and getting listed
on Indian Stock Exchange.
This instrument is similar to the GDR and ADR. IDRs
need to be registered with SEBI.
The Government opened this avenue for the foreign
companies to raise funds from the country, as a step
towards globalizing the Indian capital market and to
provide local investors exposure in global companies.
FCCB is a type of Eurobond which can be exchanged

for equity shares at some later date after the issue of
the Bond.
Features:
i. It is a type of convertible bond issued in currency
different than the issuer’s domestic currency.
ii. A convertible bond is a mix between a debt and

equity instrument as these bonds provide the
bondholder the option to convert the bond into
stock.
iii. Investors have option to convert them into GDR’s or
underlying shares. If investors prefer to hold the
bonds till the maturity date, the corporate has to
redeem them on that date.
iv. The coupon rate on the FCCB would be nominal.
v. FCCBs are denominated typically at thousand USD
each.
vi. FCCBs can be converted at predetermined
conversion price, at any time by the investor into
GDRs or underlying shares.
vii. In India, FCCBs with up to three year tenure cost
150 bps over six months LIBOR and 250 bps for 3 –
5 years tenure.
Advantages:
i. The company gains higher leverage, as debt is
reduced and equity capital enhanced upon
conversion.
ii. FCCB does not dilute ownership immediately as
holders of ADR / GDR do not have voting rights.
iii. Conversion premium adds to the capital reserves.
iv. FCCB carries fewer covenants as compared to
syndicated loan or debenture, hence more
convenient to raise funds for Mergers and
Acquisitions.
Disadvantages:
i. In a falling stock market there is no demand for
FCCB.
ii. FCCB, when converted into equity brings down
earnings per share, and eventually dilutes
ownership.
iii. In the long run, equity is costlier than debt, and
hence, when interest rates are falling, FCCBs are
not preferred.
iv. Book value of converted shares depends on the
prevailing exchange rates.
FCEB is a type of Eurobond (issued by issuing

company) which can be exchanged for equity shares of
another company (called the offered company) at
some later date after the issue of the bond.
Features:
i. FCEB is a bond expressed in foreign currency, the
principal and interest in respect of which are
payable in foreign currency.
ii. It is issued by an issuing Company and subscribed
by a person who is resident outside India in foreign
currency.
Features: contd.
iii. The issuing company has to be a part of the
promoter group.
iv. Prior approval of Foreign Investment Promotion
Board, wherever required under the Foreign Direct
Investment policy, should be obtained.
Advantages:
i. It provides an additional avenue for Indian
companies raising funds from overseas.

Advantages: contd.
ii. It helps companies unlock the value of their
holdings in other companies.
iii. It helps companies raise financing without further
dilution of ownership.
Disadvantages:
i. It is permissible only in certain areas and to the
extent that FCEB’s and FCCB’s are permitted.
ii. Proceeds of FCEB’s cannot be used for investment
in real estate sector / in capital markets.
Particulars FCCB FCEB
Conversion FCCBs are issued by a FCEBs are issued by a
company to non- company which are
residents providing exchangeable for the
them the option to shares of the specified
convert them into group company at a
shares of the same pre-determined price.
company at a pre-
determined price.
Issuing A proper Indian firm FCEBs are issued by
Company issues FCCBs . investment or holding
company of group to
non-residents

Particulars FCCB FCEB
Issue of fresh In an FCCB, when the In case of FCEB, when

shares / holder exercises the the option is exercised,
existing option to convert, the there is no issuance of
shares issuer company will fresh shares.
issue fresh shares to
the holder in exchange
for the bonds.
Default risk FCCB possesses low risk FCEB possesses high
risk

Foreign Direct Investment (FDI) Foreign Portfolio Investment (FPI)
FDI can be defined as FPI can be defined as investment
investment made by Non- by Non-Resident investors in the
Resident investors in the equity of a domestic company
equity shares of a domestic with the intention of getting quick
company with the intention of capital gains.
participating in the
management of the company.
FDI normally involves a long FPI normally involves a short

term association between the term investment in the target
investors and the target company
company.

FDI normally takes place FPI does not involve any
through a direct transaction interaction between the investor
between existing promoters and the target company and such
and the investors by private investments are made through
placements. the stock exchange.
FDI is usually a primary market FPI is usually a secondary market

transaction transaction
FDI has an impact on the FPI has no such direct impact
balance sheet of the company since secondary market
through introduction of fresh transaction involves exchange
capital, technology etc. among investors.
FDI normally involves FPI does not involve any direct

introduction of new technology, linkage between the new investor
financing arrangement, etc. as and the management. Investors
the new investor actively do not wish to take part in
participates in management management.
process.
FDI leads to economic growth FPI does not create any

since it increases employment. economic growth.

FDI is normally desired by all Due to the problem of HOT

Governments as a catalyst for MONEY associated with FPI, most
economic growth. Governments impose restrictions
on such investments.
FDI involves investment in FPI involves investment in

physical assets. financial assets.

9.15 Hot Money
FDI provides the host country with foreign currency

resources which are in most cases permanent
whereas FPI provides short term foreign currency
resources helping to reduce the use of existing
reserves for meeting BOP deficits.
FPI contributors include a diversified set of investors
with different risk profiles and investment horizons.
Macroeconomic fundamentals do not play a critical
role in such investments. The intention is to make
quick profits out of opportunities provided by emerging
markets.
9.15 Hot Money
Movements of such funds distort the exchange rates

and disrupt the capital market both when entering and
exiting a market
These monetary flows are called ‘Hot Money’.
Operations of domestic entities gets adversely

affected, therefore, to safeguard against the ill effect
of such fund movements, most governments introduce
exchange control regulations.

In India, generally stated, investments by non-

residents under the Portfolio Investment Scheme are
permitted only as foreign institutional investments.
For purpose of eligibility for investment under this

route, a non-resident has to register with the SEBI as a
Foreign Institutional Investor (FII) or as a sub-account
of an existing FII.
Registration as an FII requires fulfillment of various

conditions as prescribed by SEBI.

Investors
abroad
BSE give
FII registered in India money to
FII.
Investors
FIIs buy shares not
on behalf of such registere
Investors. d in India
FIIs issue them a contract paper called as

Participatory Note
Further, SEBI requires that any sub-account can be
registered under an FII only if that FII is the investment
manager for such sub-account.
Indian stocks, like those of other emerging market
economies, are in great demand by overseas
investors.
Some of these investors do not want to register
themselves with SEBI or due to conditions prescribed
for FII registration, are unable to register themselves.
It is in this context that the practice of FIIs issuing
Participatory Notes, equity Linked Notes etc. to such
overseas investors has become prevalent recently.
Thus Participatory Notes (PN or P-Notes) are

instruments used by foreign funds, not registered in
the country, for trading in domestic market.
Participatory notes are like contract notes and are
issued by foreign institutional investors, registered in
the country, to their overseas clients who may not be
eligible to invest in the Indian stock markets.
FIIs invest funds on behalf of such investors, who

prefer to avoid making various disclosures required by
the regulators.
9.17 Fungibility
Fungibility means an asset can be interchanged into

another asset of the same class. Such transactions
provide for equalization of prices in different markets.
In the case of Depository Receipts, Fungibility provides

for their conversion into underlying shares.
It provides investors with two exit options as they can:-

i) sell DRs on the international stock exchanges or
ii) cancel DR and sell underlying shares on the
domestic stock exchanges depending on price
benefit.
9.17 Fungibility
On February 13, 2002 the Reserve Bank of India

issued guidelines permitting “Dual Fungibility”
This means Depository Receipts converted into
local shares could be re-issued by repurchasing the
underlying shares in the local market.
Thus, the underlying shares representing the re-
issuable Depository Receipts are called
‘Headroom’.
Dual or Two-way Fungibility, therefore, represents a
form of capital account convertibility.

9.18 Foreign Direct Investment in India
FDI is a matter of special interest in developing

countries because such countries are continuously in
competition to attract foreign capital for enhancing
availability of investible funds in their economies as
also to acquire new technology and managerial skills.
This competitive environment results in developing

countries providing several financial incentives such
as tax concessions, liberal regulations and
concessions for repatriation of profits.

9.18 Foreign Direct Investment in India
However, FDI also has adverse side effects due to which

governments of developing countries need to control the
quantity of such inflows, their end utilization and the
investment agreements between the contracting parties.
Despite very liberal and transparent FDI mechanism and
sound macroeconomic fundamentals, India has not
been able to achieve the expected level of FDI inflows.
This is due to the slow process of policy and regulatory
changes. Economic reforms were introduced in India in
1991 with Liberalization, Privatization and Globalization
(LPG) model.
India
Despite attractiveness of the Indian market in terms of

size, demographics of the population, the liberalized
terms for inward FDI etc., the record of the country in
this regard has been poor. The factors that contributed
to this poor performance are:-
1. India has a highly regulated business environment
in terms of controls and procedures.
2. The government enjoys a monopoly in several key
sectors of the economy.
3. There are limitations on acquisition of real estate.
India
4. The labor laws require reframing in an environment

of market economies.
5. The infrastructure, especially in terms of
transportation is inadequate.
6. The modern communication systems available in
urban India need to percolate to rural areas.
7. The fiscal deficit arising out of government
borrowing is too large resulting in very high debt.

1. The FIPB mechanism was specially designed to

permit FDI proposals not falling under the
automatic route.
2. There are no specific pre-established parameters

for deciding on such proposals.
3. Each proposal is considered on merit, based on

potential for economic benefit to the country.
4. Each proposal is considered in totality and the

outcome is advised within 30 days of submission.
5. The recipient company , however, needs to intimate

to the concerned regional Office of RBI regarding
the receipt of investment amount within 30 days of
receipt and file the necessary documents 30 days
of issuing equity to foreign entity

1. Despite efforts and progressive liberalization of

investment norms in terms of quantitative ceilings
for various sectors and the conditions / terms of
investment, the country has failed to attract the
expected level of FDI.
2. The Government, therefore, constituted the Foreign
Investment Promotion Council to promote and
market India as an investment destination.
3. The FIPC is expected to play a proactive role in

identifying both domestic entities which can
benefit from FDI and the foreign counterparts and
countries which can be tapped for such
partnerships.
4. While the FIPB only comes into the picture when
there is an actual proposal for evaluation, the FIPC
would actively pursue generation of such proposal.
5. The FIPC is set up under the Industry Ministry to
ensure greater co-ordination of efforts towards
desired objective.
9.22 Summary
The international financing decision has several

dimensions which must be weighed against each other
before choosing a particular mode of funding. The all-in
cost of funding and the various risks remain the guiding
principles but regulatory issue and accessibility often
takes precedence over cost and risk considerations. Since
the start of 1990s, equity financing on global markets
became accessible to firms in developing countries.
Portfolio investments by foreign investors in the stock
markets of developing countries and the depository
receipts mechanism have been the dominant form of
equity financing by firms in emerging markets.

9.22 Self Assessment Questions
1. Explain the mechanism of a GDR issue.

2. What is ADR and explain different types.
3. Distinguish between FDI and FPI.
4. Bring out the concept of Petrodollars and Hot
Money.
5. Discuss the concept of participatory Notes in the
Indian context.

WITH THIS WE COMPLETE THE
CHAPTER 09 –
NEXT LET US MOVE OVER TO

CHAPTER 10
“RISK MANAGEMENT &
DERIVATIVES”

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International Finance

What do you mean by Foreign Capital

“International Equity Market”

9.1 Introduction to Foreign Capital

9.13 Distinction Between FCCB and FCEB

Foreign capital refers to the investment of capital by a

Technical Know How:

Until the end of 1970’s, international capital market

1. A Depository Receipt is a negotiable certificate

American Depository Receipt (ADR)

“International Equity Market”

4. The main objectives of a company going for an

“International Equity Market”

GDR is a negotiable instrument in

A. The Characteristic Features

A. The Characteristic Features- contd.

GDR’s are considered as common equity of the issuing

A. The Characteristic Features- contd.

Indian companies with good financial track record of

“International Equity Market”

B. Advantages of a GDR issue:

B. Advantages of a GDR issue:

“International Equity Market”

C. Mechanism of Issue: contd.

Step 01: The domestic company wishing to issue

Step 02: The issuing company appoints an

C. Mechanism of Issue: contd.

Step 03: After the road shows the lead manager

C. Mechanism of Issue: contd.

Step 05: The issuing company now issues physical

C. Mechanism of Issue: contd.

Step 08: As soon as depository bank receives the

Step 09: The issuing company helps the depository

This helps investors to freely trade on GDR’s.

D. Participants Involved in GDR Issue:

“International Equity Market”

“International Equity Market”

“International Equity Market”

Till 1990s the companies had to issue separate

ADRs can be diagrammatically represented as follows:

The Company is allowed to enlarge the investor base

This level is to raise fresh capital through public

In addition to the sponsored ADR issues a company

These issues have certain limitations in terms of

“International Equity Market”

PARTICULARS Level 1 Level 2 Level 3

Trading Pattern Only on OTC market Listing allowed Listing allowed

“International Equity Market”

PARTICULARS Level 1 Level 2 Level 3

Adherence to Only nominal Partial Full

Disclosure Limited Stringent Very

Capital raising No public issue. Public issue Public issue

“International Equity Market”

i. Provides access to the more liquid markets.

i. Access to the best investment possibilities across

No Global Depository Receipts American Depository Receipts

1 Can be denominated in Can be denominated only in

3 Depository bank can be Depository bank needs to be

No Global Depository Receipts American Depository Receipts

4 Issue does not require Issues require approval from

IDR’s are financial instruments that allow foreign

FCCB is a type of Eurobond which can be exchanged

ii. A convertible bond is a mix between a debt and