International Financial Market & GDR, ADR

1. INTERNATIONAL
FINANCIAL MARKETS

2. History
• From mid 1940s through the 1960s, the US financial market dominated the
world financial market. With the growing financial clout of other countries
from 1970s onward, the relative importance of there US financial market has
declined significantly. Given this situation, it behooves on corporate
managers (and investors as well) to understand international markets.

3. International Money Market
• The eurocurrency market is the core of the international money market-note
that euro here has nothing to do with Euro which is the currency of the
Euroland. A eurocurrency is a time deposit of money in an international
bank outside the country of the currency. Historically, London has been the
major eurocurrency financial center.
• The eurocurrency market is an external banking system. It runs parallel to
the domestic banking system of the country that issued the currency.
• It operates at the interbank and/or wholesale level.

4. Eurocurrency Loans:
The main features of
eurocurrency loans, which represent
the principal form of external
commercial borrowings for Indian
firms, are as follows.
• Syndication: Eurocurrency loans
are often syndicated loans, wherein
a group if lenders, particularly
banks, participate jointly in the
process of lending under a single
loan agreement. The syndicate of
lenders is represented by the lead
bank. The borrower is required to
pay a syndication fee, which is a
front-end payment usually ranging
between ½ percent and 2 per cent
to the lead bank.
• Floating Rate: The rate of
interest on eurocurrency loans is a
floating rate. It is usually linked to
LIBOR(London Inter Bank Offer
Rate) the interest rate at which
leading banks in London lend
funds to each other, or
SIBOR(Singapore Inter Bank Offer
Rate).the spread over the LIBOR
or SIBOR rate is mainly a function
of the credit worthiness of the
borrower, the size of the loan, and
the prevailing market conditions.
• Interest period: The interest
period may be 3,6,9, or 12 months
in duration.
• Currency Option: The
borrower often enjoys the multi-
currency options which enables it
to denominate the interest and
principal in the new currency opted
for. This option is exercisable bat
the end of each interest period.
• Repayment and Prepayment:
The eurocurrency loans are
repayable in installments, which are
typically equal, or in the form of
balloon repayment, as agreed to by
the parties. The borrower may
prepay the loan after giving due
notice to the lead bank. When
prepayment is done, some premium
is payable. The lender may also
reserve the right to recall the
outstanding loan under certain
circumstances.

5. Approvals for External Commercial
Borrowings
1. Secure the permission of the Capital Goods Committee/Projects Approval Board.
2. Obtain an offer from a bank.
3. Get the approval of the Department of Economics Affairs(DEA), Ministry of
Finance, for the offer.
4. Arrange for the documentation of the loan.
5. Secure the approval of the Reserve Bank of India.
6. Deposit the loan document with the DEA.
7. Draw the loan.

6. International Bond Markets
• An international bond is a bond sold outside the country of the borrower.
There are 2 major types of international bonds: eurobonds and foreign
bonds.
• A eurobond is a bond issued in one country but designated in the currency
of some other country.
• Foreign bonds are issued by a foreign borrower but denominated in the
currency of the country where the issue is made.

7. Other Markets
Besides the US domestic debt market, Indian companies can tap the
domestic debt markets of other countries such as Japan and UK, issuing
instruments such as Samurai Bonds(publicly issued bonds in the Japanese
market), Shibosai Bonds (privately issued bonds in the Japanese market),
Bulldog Bonds (UK market), and Rembrant Bonds (Dutch market)

8. International Equity Markets
• A company can issue equity shares in multiple markets or the capital market of a single
foreign country.
• Depository Receipts mechanism is used by Indian firms to raise finance in international
equity markets.
• Global Depository Receipts (GDRs), which can be used to tap multiple markets with a
single instrument, have been the most popular instrument used by Indian firms.
• Indian companies can also rise funds in US equity market by issuing American Depository
Receipts (ADRs).
• The difference between GDR and ADR are GDR is issued in euromarket whereas ADR is
issued in US domestic capital market.

9. GDR & ADR
• A global depositary receipt (GDR) is a bank certificate issued in more than one country for shares in a
foreign company. The shares are held by a foreign branch of an international bank. The shares trade as
domestic shares but are offered for sale globally through the various bank branches. A GDR is a financial
instrument used by private markets to raise capital denominated in either U.S. dollars or euros.
• An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. bank representing a
specified number of shares (or one share) in a foreign stock traded on a U.S. exchange. ADRs are
denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas, and
holders of ADRs realize any dividends and capital gains in U.S. dollars, but dividend payments in euros are
converted to U.S. dollars, net of conversion expenses and foreign taxes. ADRs are listed on either the NYSE,
AMEX or Nasdaq but they are also sold OTC.
• http://www.investopedia.com/terms/a/adr.asp

10. Partial list of Indian companies issued ADR &
GDR
ADR:
• Tata Motors Ltd.
• Wipro Ltd.
• Dr. Reddy's Laboratories Ltd.
• Vedanta Ltd.
• Infosys Ltd.
• ICICI Prudential Life Insurance Company Ltd.
• HDFC Bank Ltd.
• ICICI Bank Ltd.
GDR:
• Mahindra & Mahindra Ltd.
• Reliance Industries Ltd.
• Axis Bank Ltd.
• State Bank of India.
• Larsen & Toubro Ltd.

11. Other sources of Foreign Currency Finance
• Foreign Currency Term Loans from
Financial Institutions: Institutions
provides foreign currency term loans for
meeting the foreign currency expenditures.
• Export Credit Schemes: Agencies have
been established by the governments of
major industrialised countries for financing
export of capital goods and related
technical services. Agencies follows
guidelines under a convention known as
the Berne Union. They provided credit as
under buyer’s credit & supplier’s credit.
• Buyer’s Credit: credit is provided to
Indian buyer for purchasing of capital
goods and/or technical services from the
overseas exporter.
• Supplier’s Credit: credit is provided to
the overseas exporters do that they can
make available medium-term finance to
Indian importers.

12. “
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Thanking you
SUDHEER GADDE