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Raising Finance from International Markets

IBS, Mumbai

• An American Depositary Receipt (abbreviated ADR) represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. The stock of many non-US companies trade on US stock exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & crosscurrency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.

• Each ADR is issued by a U.S. depositary bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR often tracks the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. In the case of companies incorporated in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government.

There are currently four major commercial banks that provide depositary bank services JPMorgan. Citibank. The first ADR was introduced by JP Morgan in 1927. for the British retailer Selfridges & Co.• Depositary banks have various responsibilities to an ADR shareholder and to the non-US company the ADR represents. . Deutsche Bank and the Bank of New York Mellon.

.• Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS).

dollars.S. AMEX or Nasdaq. However. net of conversion expenses and foreign taxes and in accordance with the deposit agreement. dividend payments in euros would be converted to U.• American Depositary Receipt – ADR This is an excellent way to buy shares in a foreign company while realizing any dividends and capital gains in U. ADRs do not eliminate the currency and economic risks for the underlying shares in another country. . dollars.S. For example. ADRs are listed on either the NYSE.

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. Also. companies.U. ADRs are quoted and traded in US dollars in the U. the dividends are paid in US dollars.ADR • An ADR is a negotiable US certificate representing ownership of share in an non-US corporation. holding and sale of non-US securities by US investor. • ADRs were specifically designed to facilitate the purchase. securities market. and to provide a corporate finance vehicle for non.S.S.

• The stock of many non-US companies trade on US Stock exchanges through the use of ADRs. . • The shares of a non-US corporation trade on non-US exchange. while the ADR trade on US exchange.• ADRs enable to US investors to buy shares in foreign companies without undertaking cross-border transactions.

Benefits to companies • Broadening and diversifying a company’s US investor base. • Offers a new avenue for raising equity capital. . • Enhancing a company’s visibility. often at highly competitive rates. among investors. status and profile in the US and internationally.

Benefits to Investors • Convenient to purchase and hold a nonUS issuer’s securities. • Invest in high growth economies. • Opportunity to invest and earn in US dollars. • Diversifying portfolio. .

. 2. A GDR is very similar to an American Depositary Receipt.• Global Depositary Receipt – GDR 1. These instruments are called EDRs when private markets are attempting to obtain euros.

but are offered for sale globally through the various bank branches. 2. The shares are held by a foreign branch of an international bank. A bank certificate issued in more than one country for shares in a foreign company. dollars or euros. The shares trade as domestic shares.Global Depositary Receipt . . A financial instrument used by private markets to raise capital denominated in either U.GDR • 1.S.

ADR make is easier for individual to invest in foreign companies. • American Depository Receipts .• A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on a exchange of another country. . lower transaction cost and timely dividend distribution. due to wide spread availability of price information.

FCCB A type of convertible bond issued in a currency different than the issuer's domestic currency. A convertible bond is a mix between a debt and equity instrument. the money being raised by the issuing company is in the form of a foreign currency. In other words. . It acts like a bond by making regular coupon and principal payments.Foreign Currency Convertible Bond . but these bonds also give the bondholder the option to convert the bond into stock.

Foreign Currency Convertible Bond .) Due to the equity side of the bond. which adds value.FCCB These types of bonds are attractive to both investors and issuers. . which are activated when the price of the stock reaches a certain point. (Bondholders take advantage of this appreciation by means warrants attached to the bonds. the coupon payments on the bond are lower for the company. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. thereby reducing its debt-financing costs.

One is. It is a hybrid between bond and stock. It gives two options. to get the regular interest and principal and the other is to convert the bond in to equities. the money being raised by the issuing company is in the form of a foreign currency. .• A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. In other words.

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Fortis Healthcare etc. Parsvnath Builders. Hotel Leela Venture.• Essar Oil. Xl Telecom. .

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.• Traditionally. companies have raised capital from their ‘home market’ but increasingly they are approaching foreign markets.

• Various factors influence the decision viz. • Companies have flexibility in deciding whether to raise public equity capital and where to list and or trade the securities they issue. . cost involved in the capital raising and listing process. size.Raising Finance From International Markets • Equity markets are becoming more integrated.

Deutsche. Euronext. AIM. New York Stock Exchange – NYSE and Nasdaq in the USA.• Cost of raising equity capital in London’s equity market London Stock Exchange LSE. .

Corporate Governance and Professional Fees • Annual Listing Fees .Cost at IPO Stage Direct Costs On going Cost Direct Costs • Underwriting Fees. • Initial Listing Fees • Other Direct IPO Cost • Regulation.

Indirect Costs IPO Price Discount Indirect Costs Trading Cost IPO & On Going Cost is Cost of Equity Capital .

• Underwriting fee generally constitute the single largest direct cost element when issuing equity. the syndicate receive the percentage of the issue price for each share sold. .e. These are usually expressed in percentage terms as a gross spread charged by the underwriting syndicate i.

25% AIM 4% .5% Nasdaq 7% LSE 3.• • • • NYSE 6.

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