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Financial Management



                      Notes


                                        Task  A company is in dire need for funds but lost the confidence of its shareholders due
                                       to the inadequate return on investments. Which of the following methods is/are suitable
                                       to that company to raise funds? Why.
                                       1.  Public issue

                                       2.  Rights issue
                                       3.  Private placement
                                       4.  Bought out deals

                                    3.3.5  Euro Issues

                                    The Government of India as a part of liberalization and de-regulation of industry and to augment
                                    the financial resources of Indian companies, has allowed the companies to directly tap foreign
                                    resources  for their requirements.  The  liberalized measures  have boosted  the confidence  of
                                    foreign investors and also provided an opportunity to Indian companies to explore the possibility
                                    of tapping the European Market for their financial requirements. Where the resources are raised
                                    through  the mechanism of EURO  ISSUES i.e.,  Global Depository  Receipts (GDRs),  Foreign
                                    Currency Convertible Bonds (FCCB) and pure debt bonds. These investments are issued abroad
                                    and listed and traded as  a foreign stock exchange. Once they are converted into equity, the
                                    underlying shares are listed and traded on the domestic exchange.
                                    GDRs are created when the rising  company delivers  ordinary shares issued in the name  of
                                    overseas depository bank (depository) to the domestic custodian bank (who is an agent of the
                                    depository) against which the depository issues GDRs representing the underlying equity shares
                                    to the foreign investors. The physical possession of the shares remains with the depository and
                                    the respective foreign investors obtain GDRs from the depository evidencing their holding. The
                                    main advantage of the issue is that there is an inflow of foreign exchange through the proceeds
                                    of the issue whereas the dividend outflow is in Indian rupees. The Department of Economic
                                    Affairs, Ministry of Finance has given detailed Guidelines Regarding Issue of GD  GDRs can be
                                    treated freely among non-resident investors like any other dollar-dominated security either on
                                    a foreign exchange market or in the OTC market.
                                    Foreign currency convertible bond is an equity-linked unsecured debt instrument carrying a
                                    fixed rate of interest and an option of conversion into fixed number of equity shares or GDRs of
                                    the issuer company. However, the option to retain FCCB as a bond also exists. As a bond, the
                                    issuer  has the responsibility to repay the principal amount  and make  the specified interest
                                    payment for the given period. These bonds are listed and traded on one or more such exchanges
                                    abroad till conversion interest and well as redemption is paid in dollars or freely convertible
                                    currency.

                                    Self Assessment
                                    Fill in the blanks:
                                    6.   The private placement method involves …………selling of securities to a limited number
                                         of institutional or high net worth investors.
                                    7.   Foreign currency  convertible bond  is an equity-linked unsecured ………..instrument
                                         carrying a fixed rate of interest.




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