International Long-term International Long-term FinancingFinancing

Muazzam ImtiazRoll # 22MBA 4th Semester

International Equity International Equity FinancingFinancing

Equity FinancingEquity FinancingFinancing by issuing common stock

or preferred stock to the investor.

International Equity International Equity FinancingFinancingIssuance of common or preferred

stock in foreign country by listing in Foreign Stock Exchange.

Primary MarketPrimary MarketUnderwriting or issuance of new

equity shares

Secondary MarketSecondary Market

Trading of equities in foreign market.

Objectives of Listings on Objectives of Listings on Foreign Stock ExchangesForeign Stock Exchanges

Improve Liquidity of existing shares

Boost firm’s commercial visibility

Broaden ownership in foreign country

American Depository American Depository Receipts (ADRs)Receipts (ADRs)

Negotiable Certificates

Issued by US bank

Represent underlying shares of foreign firm

Where to List?Where to List?If, support a new equity issue, target

market should be listing market.If, increase the firm’s commercial

and political visibility, market should be in which firm has significant physical visibility.

If, improve liquidity of existing shares, market should be major liquid market like London, New York, Tokyo etc…

Selling New Shares in Selling New Shares in International MarketsInternational Markets

1. Selling shares in particular foreign market underwritten in whole or in part by institution from host country.

2. Selling Euro-equity issues to foreign investors in more than one country simultaneously.

3. Selling a foreign subsidiary’s shares to investors in host country.

4. Selling shares to a foreign firm as part of a strategic alliance.

Role of PrivatizationRole of Privatization

Major force behind the volume of international equity issues.

Profound impact on capital markets in general and equity markets in particular.

Other Sources of Other Sources of FinancingFinancing

Parallel LoansParallel Loans

“An initial exchange of funds between firms in different countries, such that the

transaction is reversed at some time in the future.”

Firms can avoid transaction costBut it is difficult to find

counterparties

Credit SwapsCredit Swaps“Acquire a loan for a foreign subsidiary without having to send funds abroad.”

The transaction is between company and bank.

Company deposit amount with local bank.

Finance is issued to subsidiary in foreign by bank.

The transaction is swapped at maturity.

Government LendingGovernment Lending

The host country government provide financing when they believe that projects will

generate jobstransfer some technologyTrain domestic workers

Lending by International Lending by International Development InstitutionsDevelopment Institutions

International Development Institutions like World Bank, IMF offer soft loans to the third world countries to finance infrastructure projects.

The funds are given to the host country but the companies working there are financed indirectly by Government.