Other sources of funds(E.C.B,I,D,R...........)

7/29/2019 Other sources of funds(E.C.B,I,D,R...........)

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OTHER SOURCES

OF FUNDS

PRESENTED BY:

PARTHA PRATIM DAS

ARNABA TANAYA PATRA

RAKESH KUMAR SWAIN


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SPECIAL FOCUS

Foreign portfolio investment

Foreign currency convertible bonds

External commercial borrowings

Indian depository receipts

Foreign bonds

Foreign venture capital investments


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INTRODUCTION

Globalization

Financial liberalization:-

1. Prior to 1970s

2. Early 1970s

3. The fall of Berlin wall


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WHY DO COMPANIES INVEST

OVERSEAS?

According to economist Johan Daniel:-

4 primary reasons:

1. Market seeking2. Resource seeking

3. Strategic asset seeking

4. Efficiency seeking


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WHAT IS FOREIGN

INVESTMENT?


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WHY HAS FOREIGN INVESTMENT

INCREASED SO DRAMATICALY IN

RECENT DECADES Technology:-

1. Telecommunication

2. Internet

3. Advancement in transportation

The lure of higher profits:-

1. In 1980s to 1990s

2. East Asia became center of attraction


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WHAT IS PORTFOLIO

INVESTMENT?


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FOREIGN PORTFOLIO INVESTMENT

In 1992 , India opened up its economy.

Emerged as a major source of inflow.

During 1992 2005 more than 50% of foreign

investment in India came from FPI


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FOREIGN EXCHANGE MANAGEMENT

ACT 2000

Defines:-

As buying and selling of shares ,convertible debentures of Indian companies

and units of domestic mutual funds at any of

the Indian stock exchanges


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FACTORS AFFECTING FPI

Tax rates on interest

Interest rates

Exchange rates


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BENEFITS OF FPI

Three broad ways:-

1. Inflow of FPI

2. Can induce financial resource

3. Affects the economy


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ELIGIBILITY CRITERIA FOR APPLICANTS

Financial soundness , experience , general

reputation of fairness and integrity.

Should be regulated by an appropriateforeign regulatory authority.

Registration with authorities , which are

responsible for incorporation. Permission under Foreign Exchange

Management Act 1999.


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REGULATIONS REGARDING FPI

RBI granted permission to SEBI

Cannot acquire more than 24% paid up

capital

Investment by individual FIIs

Investment by foreign sub accounts


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STATUS OF FPI IN INDIA

Mitigating foreign exchange shortages

Strong influence on Indian stock market

Capitalization of GDP

Development of secondary market


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REASONS FOR SLOW GROWTH OF

PRIMARY MARKET

Irregularities , uncertainties and lack of

protection measures result in decline.

FIIs much less active due to prolonged

lock in period for the primary market.


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FOREIGN CURRENCY CONVERIBLE

BONDS (FCCB)

Defined as:-

A type of convertible bond issued in

a currency different than the issuers domestic

currency

Money being raised by the issuing

company in the form of a foreign currency


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SILENT FEATURES OF FCCB

1. It is a quasi-debt instrument

2. It has Call and Put option

3. Interest coupon 30% to 40% less

4. It can be redeemed at par or even at

discount

5. It is basically issued by Corporate body


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CONTINUED

It can be secured and unsecured securities

It can be traded both in part and in full

It can be converted into Indian shares

Right to convert FCCB into equity shares can

arise any time


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ELIGIBILITY FOR ISSUING FCCB

An issuing company requires permissionfrom:-

o Department of Economics Affairs

o Ministry of Finance

o Government of India

An unlisted Company requires to get listed in

Indian Stock Exchange(s) An issuing company must have a consistent

track record of good performance


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STATUTARY GUIDELINE BY RBI

FCCB can be raised under Automatic route( for

specified Industries)

Financial institution participated in textile or

steel sector as approved by Government of India

RBI has recently issued a circular no. A.P.(DIR

Series) No.15 Special purpose vehicles(SPV)


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CONTINUED

Minimum Average Maturity of FCCB:-

1. 3 years borrowings up to US $20 million

2. 5 years borrowings exceeding US $20 million RBI guidelines provides that:-

1. funds received through FCCB should be

parked abroad till the actual requirementarises in India.


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FCCB MARKET & ANALYSIS OF FCCB

ISSUED

* Recent study conducted by India Brand EquityFoundation:-

1. India Inc biggest issuer of FCCB in the Asia-Pacific region

2. Taiwanese companies second largest toIndia Inc


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CONTINUED

* In total 30 FCCB issues in the Asia-Pacificregion out of which:

1. 15 from India

2. 06 from Taiwan3. Rest others

* Tata Motors limited has raised over US $400

million = Rs2215.56 crores at issue* Reliance Energy Limited has two series of

FCCB issued US $120 and US $178 million


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WHAT IS AN EXTERNAL COMMERCIAL

BORROWINGS(ECB)?

Defined as :-

It is defined as a commercialloan availed from a non resident lenders with

a minimum average maturity of 3 yrs.


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REGULATORS OF ECB

1. The Department of Economic Affairs

2. Ministry of Finance3. Government of India with support of Reserve

Bank of India


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NEEDS FOR ECBs

I. Raising funds from other countries is cheap

II. Investment and resource availability

III. Expansion of projectsIV. Fixed rate of interest

V. Cannot be used for investment in real estate

sector and stocks


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MODES OF RAISING ECBs

Commercial bank loans

Buyer's credit

Supplier's credit Securitized instruments

Loan from foreign equity holder

Asset backed securities

Mortgage backed securities


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ROUTES OF ECBs

There two routes as follows:-

1. Automatic route2. Approval route


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BASES OF COMPARISON

1) Eligibility criteria

2) Recognized lenders


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WHY ECB IS ATTRACTIVE?

From investors point of view:

ECB is for specific period which can be asshort as 3 years.

Fixed return From borrowers point of view:

no dilution in ownership

large funds can be raised Fixed rate of interest is to be paid

Easy availability of funds


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WHAT IS AN INDIAN DEPOSITORYRECEIPTS (IDR)?


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ELIGIBILITY OF COMPANIES TO ISSUE

IDRs

According to clause 26 in chapter iii

("Provisions as to public issue"), the following

are required of any company intending to

make a public issue in India:)


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CONTINUED

It has net tangible assets of at least Indian rupeethree crore in each of the preceding three fullyears (of twelve months each)

A. Which is not more than fifty per cent and areheld in monetary assets

If more than fifty per cent. of the net tangibleassets are held in monetary assets:-

1. The issuer has made firm commitments to utilizesuch excess monetary assets in its business orproject


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CONTINUED

Track record of distributable profits in terms

of section 205 of the Companies Act, 1956:-

A. At least three out of the immediately

preceding five years:

Extraordinary items shall not be consideredfor calculating distributable profits.

It has a net worth of at least INR one crore in

each of the preceding three full years (of

twelve months each)


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CONTINUED

The aggregate of the proposed issue and all

previous issues made in the same financial year

in terms of issue size does not exceed five times.

Its pre-issue net worth as per the auditedbalance sheet of the preceding financial year.

If it has changed its name within the last one

year:-A. At least fifty per cent. of the revenue for the

preceding one full year has been earned by it

from the activity indicated by the new name.


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WHAT IS BOND?


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WHAT IS A FOREIGN BOND?


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TYPES OF FOREIGN BONDS

Bull-Dog ----- U.K

Matilda ----- AUS

Yankee ----- U.S.A

Samurai ----- JAPAN

Matador ----- SPAIN


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CHARACTERISTICS OF FOREIGN BONDS

1. Issued by foreign entities

2. Traded on foreign financial market

3. Denominated in a foreign currency


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THREATS TO FOREIGN BONDS

Currency risk

Unforciable situation


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FOREIGN VENTURE CAPITAL

INVESTMENT (FVCI) IN INDIA


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WHY TO INVEST MONEY IN VENTURE

CAPITAL

Perceived by long term growth potential

High risk high return


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PARAMETERS

1. Incorporated and established in any country

outside India.

2. Willing to invest in VCF or VCU in India as per

SEBIs regulation.

3. Registered with SEBI as a FVCI.


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VENTURE CAPITAL UNDERTAKINGS

India Infrastructure Ltd

Actis Infrastructure India PCC Ltd

Americorp ventures Ltd

Apollo-Asia opportunity Gamma auritus Ltd


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CONCLUSION

Economic development

Imposing significant fiscal cost on economy

Ensuring attractiveness for the investors


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Documents

Other sources of funds(E.C.B,I,D,R...........)