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International Finance: A financial market is where people and institution who are in need of money meet those who

have excess money and wants to deploy it for productive use or purpose. With rapid growth in globalization and foreign trade , need has arisen to procure finance from the international markets as well. There could be various reasons to raise finance from the international market , these could be reason such as inadequate domestic finance, technology and development of basic infrastructure . Some of the ways in which finance can be raised in the international market are as below: 1. Foreign collaboration : In India joint participation of foreign and domestic capital has been quite common. Foreign collaboration could be either in the form of joint participation between private firms, or between foreign firms and Indian Government or between foreign government and Indian government. 2. Bilateral Government funding Arrangement: Aids provided by the developed countries in the form of loans and advances , grants , subsidies to the government of underdeveloped and developing countries . These aid is provided usually for financing government and public sector projects . funds are provided at concessional terms in respect of cost , maturity and repayment scheduled . 3. World Bank : An MNC financial Institution provides long term capital for reconstruction and development of member countries. It comprises of three related financial institutions i.e. IBRD, IFC and IDA. 4. External borrowings : These include funds raised in the form of borrowings from agencies like the US EXIM bank, Japanese EXIM bank. ECGC of UK etc usually for financing government and public sector projects . Funds are provided at concessional terms in respect of cost 5. The Foreign Bond Market: It is a bond issued in countries national bond market by an issuer not only domesticated but also internationally. This is an important part of international financing. It includes that portion of the domestic bond market that represents issued by foreign companies or Government. They are subject to local laws and must be denominated in local currency. for e.g. Dollar denominated foreign bonds sold in US markets are Yankee bond , similarly there are samurai bonds and bull dog bonds

Infrastructure Financing: There is a need for large and continuing amounts of investment1 in almost all areas of infrastructure in India. This includes transportation (roads, ports, railways, and airports),energy (generation and transmission), communications (cable, television, fiber, mobile and satellite) and agriculture (irrigation, processing and warehousing). The key issue is, while the need exists, how will these projects get financed. In the past the government has been the sole financier of these projects and has often taken responsibility for implementation, operations and maintenance as well. There is a gradual recognition that this may not be best way to execute/finance these projects. This recognition is based on considerations such as:

Cost Efficiency: privately implemented and managed projects are likely to have a better
record of delivering services which are cheaper2 and of a higher quality.3 The India Infrastructure Report (2003) estimates that the Indian economys growth rate would have been higher by about 2.5% if the delays and cost overruns in public sector projects had been managed efficiently.4 The report goes on to state that the predominant cause for such delays / overruns was not under-funding of the projects, but arose, on account of clearances, land acquisition problems, besides factors internal to the entity implementing the project.5

Equity Considerations: since it is hard to argue that every infrastructure project uniformly benefits the entire population of the country, it may be more appropriate to impose user charges which recover the cost of providing these services directly from the user rather than from the country as a whole (the latter is the effect if the government builds the project from its own pool of resources). If users are to be charged a fair price then the project acquires a purely commercial character with the government then needing to play the role only of a facilitator

Allocation Efficiency: Since users are likely to pay for services that they need the most,
private participation and risk-return management has the added benefit that scarce resources are automatically directed towards those areas where the need is the greatest. Characteristics of Infrastructure Finance Infrastructure projects differ in some very significant ways from manufacturing projectsand expansion and modernisation projects undertaken by companies. 1. Longer Maturity: Infrastructure finance tends to have maturities between 5 yearsto 40 years. This reflects both the length of the construction period and the life ofthe underlying asset that is created. A hydro-electric power project for example maytake as

long as 5 years to construct but once constructed could have a life of as longas 100 years, or longer. 2. Larger Amounts: While there could be several exceptions to this rule, a meaningful sized infrastructure project could cost a great deal of money. For example a kilometer of road or a mega-watt of power could cost as much as US$ 1.0 mn and consequently amounts of US$ 200.0 to US$ 250.0 mn (Rs.9.00 bn to Rs.12.00 bn) could be required per project. 3. Higher Risk: Since large amounts are typically invested for long periods of time it is not surprising that the underlying risks are also quite high. The risks arise from a variety of factors including demand uncertainty, environmental surprises technological obsolescence (in some industries such as telecommunications) and very importantly, political and policy related uncertainties. 4. Fixed and Low (but positive) Real Returns: Given the importance of these investments and the cascading effect higher pricing here could have on the rest of the economy, annual returns here are often near zero in real terms.16 However, once again as in the case of demand, while real returns could be near zero they are unlikely to be negative for extended periods of time (which need not be the case for manufactured goods.17) Returns here need to be measured in real terms because often the revenue streams of the project are a function of the underlying rate of inflation.

Project Financing

Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects, including Euro Disneyland and the Eurotunnel. Employing a carefully engineered financing mix, it has long been used to fund large-scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydro-electric projects. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility

Risk minimization process

Financiers are concerned with minimizing the dangers of any events which could have a negative impact on the financial performance of the project, in particular, events which could result in: (1) the project not being completed on time, on budget, or at all; (2) the project not operating at its full capacity; (3) the project failing to generate sufficient revenue to service the debt; or (4) the project prematurely coming to an end. The minimization of such risks involves a three step process. The first step requires the identification and analysis of all the risks that may bear upon the project. The second step is the allocation of those risks among the parties. The last step involves the creation of mechanisms to manage the risks. If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan.

Venture capital: Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which and usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc. The typical venture capital investment occurs after the seed funding round as growth funding round (also referred to as Series A round) in the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company. Venture capital is a subset of private equity. Therefore, all venture capital is private equity, but not all private equity is venture capital. Venture capital is a means of equity financing for rapidly-growing private companies. Finance may be required for the start-up, development/expansion or purchase of a company. Venture Capital firms invest funds on a professional basis, often focusing on a limited sector of specialization (eg. IT, infrastructure, health/life sciences, clean technology, etc.). The goal of venture capital is to build companies so that the shares become liquid (through IPO or acquisition) and provide a rate of return to the investors (in the form of cash or shares) that is consistent with the level of risk taken. With venture capital financing, the venture capitalist acquires an agreed proportion of the equity of the company in return for the funding. Equity finance offers the significant advantage of having no interest charges. It is "patient" capital that seeks a return through long-term capital gain rather than immediate and regular interest payments, as in the case of debt financing. Given the nature of equity financing, venture capital investors are therefore exposed to the risk of the

company failing. As a result the venture capitalist must look to invest in companies which have the ability to grow very successfully and provide higher than average returns to compensate for the risk Venture capital has a number of advantages over other forms of finance, such as: It injects long term equity finance which provides a solid capital base for future growth. The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed coinvestments with other venture capital firms when additional rounds of financing are required. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth. Investment Process

The investment process begins with the venture capitalist conducting an initial review of the proposal to determine if it fits with the firm's investment criteria. If so, a meeting will be arranged with the entrepreneur/management team to discuss the business plan.

1. Preliminary Screening The initial meeting provides an opportunity for the venture capitalist to meet with the entrepreneur and key members of the management team to review the business plan and conduct initial due diligence on the project. It is an important time for the management team to demonstrate their understanding of their business and ability to achieve the strategies outlined in the plan. The venture capitalist will look carefully at the team's functional skills and backgrounds.

2. Negotiating Investment This involves an agreement between the venture capitalist and managementof the terms of the term sheet, often called memorandum of understanding (MoU). The venture capitalist will then proceed to study the viability of the market to estimate its potential. Often they use market forecasts which have been independently prepared by industry experts who specialise in estimating the size and growth rates of markets and market

segments. The venture capitalist also studies the industry carefully to obtain information about competitors, entry barriers, potential to exploit substantial niches, product life cycles, and distribution channels. The due diligence may continue with reports from other consultants.

3. Approvals and Investment Completed The process involves due diligence and disclosure of all relevant business information. Final terms can then be negotiated and an investment proposal is typically submitted to the venture capital funds board of directors. If approved, legal documents are prepared. The investment process can take up to two months, and sometimes longer. It is important therefore not to expect a speedy response. It is advisable to plan the business financial needs early on to allow appropriate time to secure the required funding.

Securitization: Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). The granularity of pools of securitized assets is a mitigant to the credit risk of individual borrowers. Unlike general corporate debt, the credit quality of securitized debt is non-stationary due to changes in volatility that are time- and structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches may experience dramatic credit deterioration and loss.

Structure of Securitization:

1. Pooling and transfer:

The originator initially owns the assets engaged in the deal. This is typically a company looking to raise capital, restructure debt or otherwise adjust its finances. Under traditional corporate finance concepts, such a company would have three options to raise new capital: a loan, bond issue, or issuance of stock. However, stock offerings dilute the ownership and control of the company, while loan or bond financing is often prohibitively expensive due to the credit rating of the company and the associated rise in interest rates. A suitably large portfolio of assets is "pooled" and transferred to a "special purpose vehicle" or "SPV" (the issuer), a tax-exempt company or trust formed for the specific purpose of funding the assets. Once the assets are transferred to the issuer, there is normally no recourse to the originator. The issuer is "bankruptcy remote," meaning that if the originator goes into bankruptcy, the assets of the issuer will not be distributed to the creditors of the originator. In order to achieve this, the governing documents of the issuer restrict its activities to only those necessary to complete the issuance of securities. 2. Issuance: To be able to buy the assets from the originator, the issuer SPV issues tradable securities to fund the purchase. Investors purchase the securities, either through a private offering (targeting institutional investors) or on the open market. The performance of the securities is then directly linked to the performance of the assets. Credit rating agencies rate the securities which are issued to provide an external perspective on the liabilities being created and help the investor make a more informed decision. The securities can be issued with either a fixed interest rate or a floating rate under currency pegging system. Fixed rate ABS set the coupon (rate) at the time of issuance, in a fashion similar to corporate bonds and T-Bills. Floating rate securities may be backed by both amortizing and non-amortising assets in the floating market. In contrast to fixed rate securities, the rates on floaters will periodically adjust up or down according to a designated index such as a U.S. Treasury rate, or, more typically, the London Interbank Offered Rate (LIBOR). The floating rate usually reflects the movement in the index plus an additional fixed margin to cover the added risk. 3. Credit enhancement: Unlike conventional corporate bonds which are unsecured, securities generated in a securitization deal are "credit enhanced," meaning their credit quality is increased above that of the originator's unsecured debt or underlying asset pool. This increases the likelihood that the investors will receive cash flows to which they are entitled, and thus causes the securities to have a higher credit rating than the originator. Some securitizations use external credit enhancement provided by third parties, such as surety bonds and parental guarantees (although this may introduce a conflict of interest). Credit enhancements affect credit risk by providing more or less protection to promised cash

flows for a security. Additional protection can help a security achieve a higher rating, lower protection can help create new securities with differently desired risks, and these differential protections can help place a security on more attractive terms 4. Servicing: A servicer collects payments and monitors the assets that are the crux of the structured financial deal. The servicer can often be the originator, because the servicer needs very similar expertise to the originator and would want to ensure that loan repayments are paid to the Special Purpose Vehicle. The servicer can significantly affect the cash flows to the investors because it controls the collection policy, which influences the proceeds collected, the charge-offs and the recoveries on the loans. Any income remaining after payments and expenses is usually accumulated to some extent in a reserve or spread account, and any further excess is returned to the seller. Bond rating agencies publish ratings of asset-backed securities based on the performance of the collateral pool, the credit enhancements and the probability of default. Securitization in India The growth in the Indian securitization market has been largely fuelled by the repackaging of retail assets and residential mortgages of banks and FIs. This market has been in existence since the early 1990s, though has matured significantly only post-2000 with an established narrow band of investor community and regular issuers. According to Industry estimates, the structured issuance volumes have grown considerably in the last few years; though still small compared to international volumes. Asset backed securitization (ABS) is the largest product class driven by the growing retail loan portfolio of banks and other FIs, investors familiarity with the underlying assets and the short maturity period of these loans. The mortgage backed securities (MBS) market has been rather slow in taking off despite a growing housing finance market due to the long maturity periods, lack of secondary market liquidity and the risk arising from prepayment/reprising of the underlying loan.

Some examples of securitization in the Indian context are:


First securitization deal in India between Citibank and GIC Mutual Fund in 1991 for Rs 160 mn L&T raised Rs 4,090 mn through the securitization of future lease rentals to raise capital for its power plant in 1999. Indias first securitization of personal loan by Citibank in 1999 for Rs 2,841 mn. Indias first mortgage backed securities issue (MBS) of Rs 597 mn by NHB and HDFC in 2001.

Securitisation of aircraft receivables by Jet Airways for Rs 16,000 mn in 2001 through offshore SPV. Indias first sales tax deferrals securitisation by Govt of Maharashtra in 2001 for Rs 1,500 mn. Indias first deal in the power sector by Karnataka Electricity Board for receivables worth Rs 1,940 mn and placed them with HUDCO. Indias first Collateralised Debt Obligation (CDO) deal by ICICI bank in 2002 Indias first floating rate securitisation issuance by Citigroup of Rs 2,810 mn in 2003. The fixed rate auto loan receivables of Citibank and Citicorp Finance India included in the securitisation Indias first securitisation of sovereign lease receivables by Indian Railway Finance Corporation (IRFC) of Rs 1,960 mn in 2005. The receivables consist of lease amounts payable by the ministry of railways to IRFC Indias largest securitisation deal by ICICI bank of Rs 19,299 mn in 2007. The underlying asset pool was auto loan receivables. Issues facing the Indian Securitisation Market:

Stamp Duty: One of the major hurdles facing the development of the securitisation market is the stamp duty structure. In India, stamp duty is payable on any instrument which seeks to transfer rights or receivables. Therefore, the process of transfer of the receivables from the originator to the SPV involves an outlay on account of stamp duty, which can make securitisation commercially unviable in states that still have a high stamp duty. Few states have reduced their stamp duty rates, though quite a few still maintain very high rates ranging from 5-12 per cent. To the investor, if the securitised instrument is issued as evidencing indebtedness, it would be in the form of a debenture or bond subject to stamp duty, and if the instrument is structured as a Pass Through Certificate (PTC) that merely evidences title to the receivables, then such an instrument would not attract stamp duty. Some states do not distinguish between conveyances of real estate and that of receivables, and levy the same rate of stamp duty.

SEBI has suggested to the government on the need for rationalisation of stamp duty with a view to developing the corporate debt and securitisation markets in the country, which may going forward be made uniform across states as also recommended by the Patil Committee.

Foreclosure Laws: Lack of effective foreclosure laws also prohibits the growth of securitisation in India. The existing foreclosure laws are not lender friendly and increase the risks of MBS by making it difficult to transfer property in cases of default.

Taxation related issues: There is ambiguity in the tax treatment of mortgage-based securities, SPV trusts, and NPL trusts. Presently, the investors or the buyers (PTC and SR holders) pay tax on the earnings from the SPV trust. As a result the trustee makes income payouts to the investors without any payment of tax. The Income Tax law envisages the taxation of an unincorporated SPV either at the trust SPV level or the investor level in order to avoid double taxation. Therefore, any tax pass through regime merely represents a stance that the investors in the trust will bear the tax liability instead of the Trust being held liable to tax the investors on their respective earnings.

Legal Issues: Investments in PTCs are typically held-to-maturity. As there is no trading activity in these instruments, the yield on PTCs and the demand for longer tenures especially from mutual funds is dampened. Till recently, Pass through Certificates (PTC) were not explicitly covered under the Securities Contracts (Regulation) Act, definition of securities. This was however ammended with the Securities Contracts (Regulation) Amendment Act, 2007 passed with a view to providing a legal framework for enabling listing and trading of securitised debt instruments. This will bring about listing of PTCs which in turn will support market growth.

HIRE PURCHSE: Hire purchase is an agreement to the sale of an asset subject to the following conditions: the goods are delivered at the beginning of the agreement on the basis that the hirer will pay an agreed amount in periodical installments mutually agreed upon; after the last installment is paid, the title of ownership will pass to the hirer; the hirer can terminate the agreement by paying all the balance installments and taking the title of the asset. The Hire Purchase Act 1972 defines a hire purchase agreement as an agreement under which goods are let on hire and under which the hirer has on option to purchase them in accordance with the terms of the agreement and includes an agreement under which 1. Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments 2. The property in the good is to pass to such persons on the payment of the last of such installments and that such person pays the agreed amount in periodical installments 3. Such person has a right to terminate the agreement at any time before the property passes. Salient Features of Hire/Purchase: 1. The hire purchases the equipment from the equipment supplier and lets it on hire to the hirer.

2. The hirer is required to pay, hire/purchase installments over a specified period of time. The hire/purchase installments are payable monthly in advance. 3. The ownership of the asset is transferred after the hirer has paid the last installment. 4. Each installment is treated as hire charge so that if default is made in payment of any one installment, the seller is entitled to take away the goods. 5. The terms and conditions relating to the usage of the asset, namely its maintenance insurance etc and the rights and obligations of the parties to the agreement are described in the hire/purchase agreement Hire /Purchase in India: Hire/purchase has been in operation in India for an appreciable period of time. The first hire/purchase companies in India were the commercial Credit Corporation Ltd and Motor and General Finance Ltd which were set up in the beginning of this century to finance the transport sector. Vehicle financing is broadly categorized into motors cars and trucks. Leading truck financers are Ashok Leyland Finance Co., SR Truck Finance etc. Amongst the motor car finance companies the leaders are Kotak Mahindra, Escorts Financial Services and Citi Mobile Finance. Presently Hire/purchase transactions are done on a large scale by finance companies. Certain private banks and foreign banks have also entered this field through establishment of subsidiaries. Hire/ purchase is a preferred transaction for banks as it is a superior method than hypothecation. Banks are better placed in recovery of vehicle advances and borrowers would be benefited as more credit would be made available. Leasing The fundamental characteristic of a lease is that ownership never passes to the business customer. Instead, the leasing company claims the capital allowances and passes some of the benefit on to the business customer, by way of reduced rental charges. The business customer can generally deduct the full cost of lease rentals from taxable income, as a trading expense. As with hire purchase, the business customer will normally be responsible for maintenance of the equipment. There are a variety of types of leasing arrangement: Finance Leasing The finance lease or 'full payout lease' is closest to the hire purchase alternative. The leasing company recovers the full cost of the equipment, plus charges, over the period of the lease.

Although the business customer does not own the equipment, they have most of the 'risks and rewards' associated with ownership. They are responsible for maintaining and insuring the asset and must show the leased asset on their balance sheet as a capital item. When the lease period ends, the leasing company will usually agree to a secondary lease period at significantly reduced payments. Alternatively, if the business wishes to stop using the equipment, it may be sold second-hand to an unrelated third party. The business arranges the sale on behalf of the leasing company and obtains the bulk of the sale proceeds. Operating Leasing If a business needs a piece of equipment for a shorter time, then operating leasing may be the answer. The leasing company will lease the equipment, expecting to sell it secondhand at the end of the lease, or to lease it again to someone else. It will, therefore, not need to recover the full cost of the equipment through the lease rentals. This type of leasing is common for equipment where there is a well-established secondhand market (e.g. cars and construction equipment). The lease period will usually be for two to three years, although it may be much longer, but is always less than the working life of the machine. Assets financed under operating leases are not shown as assets on the balance sheet. Instead, the entire operating lease cost is treated as a cost in the profit and loss account. Raising Term Loans Working Capital