Page 69 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes 14 per cent. Moreover, with growing exports, IAC has a natural hedge. Although 1996-97
was a difficult year for IAC, total exports by its crore business increased by 15 per cent.
Export of semi-fabricated products increased by 10 per cent and alumina exports were up
by 20 per cent. This was notwithstanding a disquieting trend with import duties on
aluminium foils, sheets and extrusions moving further southwards to 20 per cent from the
already lowered 25 per cent.
Utilisation of Funds

The Indian associate of the Canadian major company has also kept its options open for
raising more loans through this route in the current year. The loans would be raised for
the continuous caster project for supply of good quality cast coils to the Belur sheet plant,
which is likely to be completed by the end of the current year. With the aim of reducing
the interest burden, IAC is also funding its working capital from FCNR(B) borrowings
and commercial paper. IAC Ltd has mopped up ` 35 crores through commercial paper in
the current fiscal. Commercial paper rates are hovering at around 12 per cent. The
aluminium major has used the foreign debt to complete its aluminium scrap recycling
project at Taloja in Maharashtra. This unit has a capacity of 25,000 tonnes per annum. The
installation of a twin-head poly-extruder at Kalwa has helped the company produce high
quality laminated foil and webstock. With enhanced conversion facilities, the value added
laminated foil would surpass the production of plain foil at Kalwa. The debt was also used
for installation of an electronic engraver helping the company to position itself as one of
the most modern converting units in the Indian Ocean Rim region. The capital expenditure
exercise also took into account infotech package being installed by Oracle. This included
a canned software package which would help link databases at Indal’s 10 offices and
13 plants. In short, it would improve Indal’s supply chain and financial management. The
capital expenditure during the last fiscal was ` 126 crore, almost 19 per cent more than the
previous year. Sources said projects worth more than ` 61 crore were completed and
commissioned.
Source: International Financial Management, Madhu Vij, Excel Books.

4.5 Euro Debt

External Commercial Borrowings (ECBs) are defined to include:
1. Commercial bank loans.
2. Buyer’s credit.

3. Supplier’s credit.
4. Credit from official export credit agencies.
5. Securitised instruments such as fixed rate notes and floating rate bonds.
6. Commercial borrowings from the private sector window of multilateral financial
institutions such as IFC, ADB, AFIC, CDC, etc.
7. Various forms of Euro bonds and Syndicated loans.
Here we will only analyse the long-term sources of finance and hence will concentrate only on
the last mode.

4.5.1 Foreign Currency Convertible Bonds (FCCBs)

The instrument floated by the Indian companies are commonly referred to as Foreign Currency
Convertible Bonds (FCCBs). FCCBs are basically equity linked debt securities, which are

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