Post on 08-May-2015
The International Banking
& Money MarketPART II
The International Euro-Equity Market
Mobilizing Equity Flows
For mobilising equity investments, the companies
can approach:
1.Domestic markets
2.Foreign stock exchanges
MAJOR STOCK EXCHANGES ( 31.12.2010)
Rank Economy Stock Exchange Location
Market Capitalisatio
n Trade Value
(USD Billions)(USD Billions)
1 USA/ Europe NYSE Euronext New York 15970 19813
2 USA/ Europe NASDAQ OMX New York 4931 13439
3 Japan Tokyo Stock Exchange Tokyo 3,827 3,787
4UnitedKingdom London Stock Exchange London 3,613 2,741
5 China Shanghai Stock Exchange Shanghai 2,717 4,496
6 Hong KongHong Kong Stock
Exchange Hong Kong 2,711 1,496
7 Canada Toronto Stock Exchange Toronto 2,170 1,368
8 India Bombay Stock Exchange Mumbai 1,631 258
9 India
National Stock Exchange of
India Mumbai 1,596 801
10 Brazil BM&F Bovespa Sao Paulo 1,545 868
11 AustraliaAustralian SecuritiesExchange Sydney 1,454 1,062
12 Germany Deutsche Borse Frankfurt 1,429 1,628
13 China Shenzen Stock Exchange Shenzen 1,311 3,572
14 Switzerland SIX Swiss Exchange Zurich 1,229 788
15 Spain BME Spanish Exchanges Madrid 1,171 1,360
16 South Korea Korea Exchange Seoul 1,091 1,607
17 Russia MICEX Moscow 949 408
18 South Africa JSE Limited Johannesburg 925 340
Mobilizing Equity Flows – Cross Listing
Cross-listing refers to a firm having its equity shares listed on one or more foreign exchanges, in addition to the home country stock exchange
MNCs often cross-list their shares, but non- MNCs also cross-list
Foreign Investors
Foreign investors enter an equity market with
basic risk return trade off in their minds
While entering a nation, the FIIs undertake a
country study in which various economic indicators are tracked and analysed…..
Foreign Investors
1. The growth rate of the economy2. Debt/ GDP ratio3. Foreign reserve position4. Debt service ratio5. Transparency of institutional
practices6. Political risk
Mobilizing Equity Flows
In developed equity markets, accounting standards and disclosure norms are
stringent
Therefore, it is usually difficult to list equity on these exchanges
To avoid this, depository receipts can be issued and funds mobilised
ADRs & GDRs
In American markets, there are two importantinstruments with the help of which the funds canbe mobilised:
1. American Depository Receipts (ADRs)2. Global Depository Receipts (GDRs)
ADRs have less stricter norms than GDRs
GDRs
GDR represents a certain number of underlying equity shares ( e.g. Reliance 1 GDR = 2 equity shares) The shares are issued by the company to the intermediary called the depository, in whose name the shares are registered It is the depository which subsequently
issues the GDRs
GDRs
The physical possession of the equity shares is with custodian
GDRs do not figure in the books of accounts of the company
Though the GDRs are quoted in dollars, the underlying is in rupees
GDRs
The dividend outflow is in rupees. The depository converts it in US dollars and
pays to the investors after deducting tax
GDRs can be cancelled and exchanged against
share certificates
Uses of GDR for Corporate Financing
To raise debt or equity capital To diversify shareholder base To increase demand for their securities To create dollar denominated securities for tax efficient acquisitions To enhance global image The company does not assume any foreign exchange risk
Benefits to the Investors
GDRs are quoted in dollars, dividend and interest are also in dollars GDRs overcome foreign investment restrictions GDRs overcome obstacles that
institutional investors have in purchasing and holding securities outside the domestic markets
GDRs
Prices of GDRs are often close to values of related shares, but they are traded & settled independently of the underlying share
Several international banks issue GDRs, such as
JP Morgan Chase, Citigroup, Deutsche Bank, Bank of New York
GDRs
GDRs are often listed in the Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB)
Normally 1 GDR = 10 Shares, but not always
GDR Prices as on 03.09.20101 USD = Rs. 46.6700
Security NameGDRPrice
EquivValue
Issue Date
IssueSize
IssuePrice
Prem /Discount
(US $) (Rs.) (USD
millions) (USD)to Issue Price
(%)
L and T (GDR) 39.85 929.90 31/03/1996 150.00 15.35 159.60
M and M (GDR) 13.67 637.98 30/11/1993 74.75 4.46 206.50
Ranbaxy (GDR) 10.98 512.44 30/06/1994 100.00 19.38 -43.34
RIL (GDR) 40.00 933.40 28/02/1994 300.00 11.75 240.42
SBI (GDR) 118.63 2,768.23 31/10/1996 369.95 14.15 738.37
American Depositary Receipts (ADRs)
ADR represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets
The stock of many non-US companies trade on US stock exchanges through the use of ADRs
American Depositary Receipt (ADRs)
ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross- currency transactions
ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies
ADR Prices as on 03.09.20101 USD = Rs. 46.6700
Security Name ADR Price (US $) ADR Price Date Equiv Value (Rs.)
Dr.Reddy (ADR) 30.56 3/9/2010 1,426.24
HDFCBank (ADR) 169.58 3/9/2010 7,914.30
ICICIBk. (ADR) 43.31 3/9/2010 2,021.28
INFY(ADR) 60.66 3/9/2010 2,831.00
MTNL(ADR) 2.74 3/9/2010 127.88
Patni (ADR) 19.60 3/9/2010 914.73
Rediff (ADR) 2.95 3/9/2010 137.68
Satyam (ADR) 5.04 3/9/2010 235.22
SIFY (ADR) 1.57 3/9/2010 73.27
Sterlite (ADR) 13.88 3/9/2010 647.78
Indian Equity & Foreign Equity Market
In Sept. 1992, the Indian government announced the opening of Indian stock markets for approved foreign institutional investors (FIIs) FIIs were allowed to buy 24% of equity in Indian companies The eligible foreign investors include pension funds, mutual funds etc.
Indian Depository Receipts (IDRs)
A foreign company can access Indian securities market for raising funds through issue of IDRs
An IDR is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository against the underlying equity of issuing company
Indian Depository Receipts (IDRs)
Just like overseas investors in the US-listed American Depository Receipts (ADRs) of Infosys and Wipro get receipts against ownership of shares held by an Indian custodian, an IDR is proof of ownership of foreign company’s shares
The IDRs are denominated in Indian currency
Indian Depository Receipts (IDRs)
IDRs will be issued to Indian residents in the same way as domestic shares are issued Investors eligible to participate in an IDR issue are institutional investors, including FIIs — but excluding insurance companies and venture capital funds — retail investors and non-
Institutional Investors NRIs can also participate in the Issue
Indian Depository Receipts (IDRs)
Indian individual investors have restrictions on holding shares in foreign companies, but IDR gives Indian residents a chance to invest in a listed foreign entity
No resident individual can hold more than $200,000 worth of foreign securities, including shares, as per foreign exchange regulations. However, this will not be applicable for IDR
Indian Depository Receipts (IDRs)
Standard Chartered PLC, a UK based multinational bank has become the first global company to file for an issue of Indian Depository Receipts in India
The company’s issue for 24 crore IDRs opened on may 25, 2010 and sought to raise between Rs. 2400 to Rs. 2700 Crore.
The issue was subscribed 2.20 times on an overall basis
Indian Depository Receipts (IDRs)
10 IDRs represent one share of US $ 0.50 nominal value
Standard Chartered Bank, Mumbai is the domestic depository, and it appointed Bank of New York, Mellon as its overseas depository
Thank you