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