Introduction to CF

RT
• Long Term Financing
– Debt
– Equity
– Preference Shares
– Domestic/Overseas
• Equity Shares
– Share capital other than pref. share capital is
known as equity share capital. Equity shareholders
have the following rights:
• Voting rights at general meetings of the company
• Rights to have share in the profits of the company in
the form of distribution of dividend and bonus shares
• However, in the event of closing of the company, equity
share capital is repayable only after repayment of
claims of all the creditors and preference shareholders.
• Preference Shares
– Preference shareholders get preferential rights to
payment of dividend over common stockholders
and are to be repaid on liquidation.
– Preference shares may be either cumulative Or
non-cumulative.
– Preference shares can also be convertible or
redeemable.
• Debentures
– A debenture is a certificate issued by a company
acknowledging indebtedness. It provides for
payment of interest at a fixed rate and repayment
of principal at fixed dates.
– A debenture is a debt security issued by a
corporation that is not secured by specific assets
– In India ‘bonds’ and ‘debentures’ are used
interchangeably.
• Debentures: Convertibility
– According to convertibility, debentures can be classified into
three categories:
– Fully Convertible Debentures (FCD)
• A type of debt security where the whole value of the debenture is
convertible into equity shares
– Partly Convertible Debentures (PCD)
• A type of convertible debenture, part of which will be redeemed by
the issuing company after a specified period of time and part of
which is convertible into equity or preference shares at the end of
the specified period.
– Non-Convertible Debentures (NCD)
• Equity Warrants
– A warrant in which the underlying security is a stock.
– That is, an equity warrant is a certificate issued with a
security giving the holder the option of buying a stock
at a certain strike price for a certain period of time.
– Warrants are issued by companies during a round of
financing as an added incentive to buy a security to
enhance the marketability.
– The warrant is a tradable negotiable instrument and is
listed on the stock exchanges for trade.
• Equity Warrants: Issuer
– Warrants generally are used by small, rapidly growing
firms as “sweeteners”.
– Such firms are regarded by investors as highly risky, so
their bonds can be sold at extremely high coupon rates.
– Giving warrants with the bond enables an investors to
share in the company’s growth, assuming it does in fact
grow and prosper.
– When the warrants are exercised, there is a wealth
transfer from existing stockholders to exercising warrant
holders.
• Venture Capital
– Financial intermediaries that are typically set up as
limited partnerships
– Corporations are also getting into VC game :
Strategic Investment
– Play an active role in overseeing, advising, and
monitoring companies in which they invest
– Generally do not want to own the investment
forever
– Promoters without any track record of
performance but with good project ideas can
approach venture capital funds to raise capital for
launching and developing a business.
– The underlying sources of funds for them are from
high net worth individuals, pension funds,
insurance companies, banks, large corporations
and others.
– VC funds usually provide financing in stages. At each
stage, they invest enough money to reach the next
stage.
– For example, they may provide seed capital or first
stage financing to build a prototype. If that is
successful, then they may provide second stage
financing to buy plant and machinery for commercial
manufacturing and marketing and so on.
– Some VC funds specialize in certain stages of funding.
Some even actively participate in running the business.
IPO Exits for VC-backed Firms Have Been
Limited

Source: NVCA 2015 Yearbook Figures 9 and 10

• Overseas-Issues
– Since 1992, Indian companies are permitted to
issue Global Depository Receipts (GDR) or
American Depository Receipts (ADR) abroad to
raise equity share capital.
– They can also raise debt capital abroad by issuing
Foreign Currency Convertible Bonds (FCCB).
• Global Depository Receipt (GDR)
– A GDR is a foreign currency denominated
instrument in the form of a Depository receipt or
certificate created by the Overseas Depository
Bank outside India and issued to non-resident
investors against the issue of ordinary shares or
Foreign Currency Convertible Bonds of issuing
company in India.
– GDR holders have rights to dividend, rights issues
and bonus issues pertaining to the underlying
equity shares of the issuer company.
– GDR holders have no voting rights in the meetings
of the issuer company’s shareholders.
– Issuer company does not bear any foreign
currency exchange risk. The same is borne by the
GDR holders.
– Global Depository Receipt (GDR)…Features...
– GDRs are fungible both ways. A GDR holder has
the option to surrender the GDRs and hold equity
shares of the issuer company instead. Also, the
underlying equity shares received on redemption
of GDRs can be reconverted into GDRs again.
– There is no lock-in period for GDRs. An investor
who wants to cancel a GDR may do so
immediately after allotment of GDR and receive
equity shares.
• American Depository Receipt (ADR)
– American Depository Receipts (ADR) is listed in an
American stock exchange and primarily aims at
investors in America. ADRs and corresponding
dividends are denominated in dollars.
– The accounting statements of the issuer company
have to comply with the stringent requirements of
Securities and Exchange Commission of USA and
US GAAP (Generally Accepted Accounting
Principles).
 American Depository Receipt (ADR)
S.No. Company Ticker Exchange Industry
1 Dr. Reddy's Laboratories RDY NYSE Pharma. & Biotech.
2 HDFC Bank HDB NYSE Banks
3 ICICI Bank IBN NYSE Banks
4 Infosys INFY NYSE Software&ComputerSvc
5 MakeMyTrip Limited MMYT NASDAQ Travel & Leisure
6 Sify Technologies Limited SIFY NASDAQ Software&ComputerSvc
7 Tata Motors TTM NYSE Industrial Engineer.
8 Vedanta VEDL NYSE Indust.Metals&Mining
9 Videocon d2h VDTH NASDAQ TV Services
10 Wipro WIT NYSE Software&ComputerSvc
11 WNS Holdings WNS NYSE Support Services
 American Depository Receipt (ADR)
S.No. Company Ticker Exchange Ratio of ADR:ORD Industry Depository Bank Price USD/INR
1 Dr. Reddy's RDY NYSE 1:1 Pharma. & Biotech. JPMC 43.46/2975
2 HDFC Bank HDB NYSE 1:3 Banks JPMC 64.34/ 1267
3 ICICI Bank IBN NYSE 1:2 Banks DB 7.57/257
4 Infosys INFY NYSE 1:1 Software&Computer DB 945/14.09
5 Tata Motors TTM NYSE 1:5 Industrial Engineer. CIT 39.05/ 540
6 Vedanta VEDL NYSE 1:4 Construct.&Materials CIT 14.40/252
• Foreign Currency Convertible Bonds (FCCB)
– A type of convertible bond issued in a currency
different than the issuer's domestic currency
– The features are:
–These are quasi-debt securities denominated in a foreign
currency.
–These are convertible into equity shares of the issuer
company or into depository receipts on the expiry of a
minimum lock-in period. The exchange rate for the
conversion and the conversion price are fixed.
–These bonds are with put and call options.
Thank you