foreign capital

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foreign capital

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Foreign Capital

Foreign Capital: 

Foreign Capital The capital city of a country other than your own. Money invested from another country.

Source: 

Source Equity FDI International Depository Receipt ADR/GDR Debt Foreign currency Loan ECB/FCCB

FDI: 

FDI Around US$ 48 billion of FDI has been pumped in the Indian economy in the last two years. Research anticipates that India could attract FDI worth as much as US$ 80 billion in next 1-2 years. FDI inflow rose by 50% to US$ 20.76 billion during January-August 2011,

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Services --- telecom, housing and real estate, construction and power were the sectors that attracted maximum FDI during the first eight months of 2011 Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany are the major investors in India. India's foreign exchange ( Forex ) reserves have increased by US$ 858 million to US$ 318.4 billion for the week ended October 21, 2011.

Depository Receipt: 

Depository Receipt A receipt issued by a bank as evidence of ownership of one or more shares of the underlying stock of a foreign corporation that the bank holds in trust. DRs represent shares of an Indian company trading on a foreign stock exchange The DR holders are part of foreign holding in a company but unlike FDI, investors in DRs do not enjoy voting rights

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No prior approval of SEBI, RBI or government is required for issue of DRs Depositary Receipts can trade on all U.S. stock exchanges as well as on many European stock exchanges

Types of Depository Receipts: 

Types of Depository Receipts ADRs – Traded in US markets GDR s – Typically traded in one or more markets EDR s – Traded in Euro markets

Benefit: 

Benefit Benefits to a Company: Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity, which may increase or stabilize the share price. Enhanced visibility and image for the company's products, services and financial instruments in a marketplace outside its home country.

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Flexible mechanism for raising capital A vehicle or currency for mergers and acquisitions.

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Benefits to an Investor: Diversification of portfolio Familiar trade, and settlement procedures. Information easily available

Risk involved: 

Risk involved Inflation Risks of the countries Exchange Rate risks Political risks Finally Performance of the company

American Depositary Receipts : 

American Depositary Receipts Certificates issued by a U.S. depositary bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue.

Advantages : 

Advantages Flexibility to list on national exchange in the US Ability to raise capital Diversify portfolio Save money by reducing administration costs Trade is clear and settle in US Dollar

Disadvantages : 

Disadvantages Only small selection of ADRs available for trading Long time to receive information Currency exchange risk Political and economical risks

GDR: 

GDR 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

Advantages : 

Advantages GDR allow the investors to hold share in foreign companies without bothering about their accounting practice, laws or any other rules It facilitates easy trading method since in the global market you can buy shares or sell it using dollars and the stock market offerings are listed out in English you can buy them even you are restricted by any investment objective which prevents you from buying stocks of foreign companies.

FOREIGN CURRENCY LOANS : 

FOREIGN CURRENCY LOANS Foreign currency loans are given by the domestic banks to Corporate. These loans are given from the deposits of the Foreign currency accounts Non Resident Indians.

FCL-Advantages: 

FCL-Advantages These funds are primarily available to Export oriented unit( project financing) Importing companies( payments) Public sector units ( For purchase of capital goods Relatively cheaper Funds Lesser Processing time

EXTERNAL COMMERCIAL BORROWINGS ECBs : 

EXTERNAL COMMERCIAL BORROWINGS ECBs These includes buyers credits, bank loans, securities issued, credits from official credit agencies. These funds are made available by foreign banks, Financial institutions abroad like IMF, World Bank etc.

Specifications: : 

Specifications: Usage Specifications: Raised only for Investment. Permitted for overseas acquisitions( Subsidiaries)

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Restrictions: Investment in Capital Markets Investment in Real Estate sector Domestic Companies Takeover

Foreign Currency Convertible Bond (FCCB) : 

Foreign Currency Convertible Bond (FCCB) A convertible bond issued in a currency different than the issuer’s domestic currency It is a hybrid between bond and stock.

How does it help? : 

How does it help? It may appear to be more stable than their domestic currency Gives issuers the ability to access investment capital available in foreign markets It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component

How does it benefit an investor? : 

How does it benefit an investor? Safety of guaranteed payments on the bond Redeemable at maturity if not converted Easily marketable as investors enjoys option of conversion in to equity

bibliography: 

bibliography http://business.mapsofindia.com/fipb/forms-foreign-capital-flowing.html http://www.ibef.org/india/economy/fdi.aspx http://internationalinvest.about.com/od/investinginadrs/a/whatisadr.htm http://blog.nobletrading.com/2009/03/adr-types-and-advantages.html http://www.articlesbase.com/small-business-articles/advantages-and-disadvantages-of-global-depositary-receipt-4512703.html http://thismatter.com/money/stocks/global-depositary-receipts.htm http://www.bankbazaar.com/guide/all-about-fccb-foreign-currency-convertible-bond/3767/