OTHER SOURCES OF FUNDS

PRESENTED BY: PARTHA PRATIM DAS ARNABA TANAYA PATRA RAKESH KUMAR SWAIN

SPECIAL FOCUS
Foreign portfolio investment Foreign currency convertible bonds External commercial borrowings Indian depository receipts Foreign bonds Foreign venture capital investments

INTRODUCTION
Globalization Financial liberalization:1. Prior to 1970s 2. Early 1970s 3. The fall of Berlin wall

WHY DO COMPANIES INVEST OVERSEAS?

According to economist Johan Daniel: 4 primary reasons: 1. Market seeking 2. Resource seeking 3. Strategic asset seeking 4. Efficiency seeking

WHAT IS FOREIGN INVESTMENT?

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

WHAT IS PORTFOLIO INVESTMENT?

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

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

FACTORS AFFECTING FPI

Tax rates on interest Interest rates Exchange rates

BENEFITS OF FPI
Three broad ways:-

1. Inflow of FPI
2. Can induce financial resource 3. Affects the economy

ELIGIBILITY CRITERIA FOR APPLICANTS

Financial soundness , experience , general reputation of fairness and integrity. Should be regulated by an appropriate foreign regulatory authority. Registration with authorities , which are responsible for incorporation. Permission under Foreign Exchange Management Act 1999.

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

STATUS OF FPI IN INDIA

Mitigating foreign exchange shortages Strong influence on Indian stock market Capitalization of GDP Development of secondary market

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.

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

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

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

ELIGIBILITY FOR ISSUING FCCB

o o o An issuing company requires permission from:Department of Economics Affairs Ministry of Finance 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

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)

CONTINUED
1. 2. 1. Minimum Average Maturity of FCCB:3 years borrowings up to US $20 million 5 years borrowings exceeding US $20 million RBI guidelines provides that:funds received through FCCB should be parked abroad till the actual requirement arises in India.

FCCB MARKET & ANALYSIS OF FCCB ISSUED * Recent study conducted by India Brand Equity
Foundation:1. India Inc biggest issuer of FCCB in the AsiaPacific region 2. Taiwanese companies second largest to India Inc

CONTINUED
* In total 30 FCCB issues in the Asia-Pacific
region out of which: 1. 15 from India 2. 06 from Taiwan 3. 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

WHAT IS AN EXTERNAL COMMERCIAL BORROWINGS(ECB)?

Defined as :It is defined as a commercial loan availed from a non resident lenders with a minimum average maturity of 3 yrs.

REGULATORS OF ECB
1. The Department of Economic Affairs 2. Ministry of Finance 3. Government of India with support of Reserve Bank of India

NEEDS FOR ECBs

I. Raising funds from other countries is cheap II. Investment and resource availability III. Expansion of projects

IV. Fixed rate of interest

V. Cannot be used for investment in real estate sector and stocks

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

ROUTES OF ECBs
There two routes as follows:1. Automatic route 2. Approval route

BASES OF COMPARISON
1) Eligibility criteria
2) Recognized lenders

WHY ECB IS ATTRACTIVE?

From investors point of view: ECB is for specific period which can be as short 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

WHAT IS AN INDIAN DEPOSITORY RECEIPTS (IDR)?

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:)

CONTINUED
It has net tangible assets of at least Indian rupee three crore in each of the preceding three full years (of twelve months each) A. Which is not more than fifty per cent and are held in monetary assets If more than fifty per cent. of the net tangible assets are held in monetary assets:1. The issuer has made firm commitments to utilize such excess monetary assets in its business or project

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 considered for 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)

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 audited balance 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.

WHAT IS BOND?

WHAT IS A FOREIGN BOND?

TYPES OF FOREIGN BONDS

Bull-Dog Matilda Yankee Samurai Matador --------------------U.K AUS U.S.A JAPAN SPAIN

CHARACTERISTICS OF FOREIGN BONDS

1. Issued by foreign entities 2. Traded on foreign financial market 3. Denominated in a foreign currency

THREATS TO FOREIGN BONDS

Currency risk

Unforciable situation

FOREIGN VENTURE CAPITAL INVESTMENT (FVCI) IN INDIA

WHY TO INVEST MONEY IN VENTURE CAPITAL

Perceived by long term growth potential

High risk high return

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.

VENTURE CAPITAL UNDERTAKINGS

India Infrastructure Ltd Actis Infrastructure India PCC Ltd Americorp ventures Ltd Apollo-Asia opportunity Gamma auritus Ltd

CONCLUSION
Economic development Imposing significant fiscal cost on economy Ensuring attractiveness for the investors