ecb, gdrs and adrs
TRANSCRIPT
-
7/30/2019 Ecb, Gdrs and Adrs
1/12
EXTERNAL COMMERCIAL BORROWINGS
GLOBAL DEPOSITORY RECEIPTS
-
7/30/2019 Ecb, Gdrs and Adrs
2/12
EXTERNAL COMMERCIAL BORROWINGS (ECB)
External Commercial Borrowings (ECB)refer to commercial loans (i.e. bank loans,
buyers credit, suppliers credit etc.)
availed from non-residents lenders withminimum average maturity of 3 years. It
can be accessed under two routes
Automatic Route
Approval Route
-
7/30/2019 Ecb, Gdrs and Adrs
3/12
AUTOMATIC ROUTE (ECB)
ECB for investment in real sector industrialsector, especially infrastructure in India, willbe under Automatic Route, i.e. it will notrequire RBI/Government approval. If
applicant is having doubt, he/she can takerecourse to the Approval route.
Eligible Borrowers: Corporate registeredunder the companies act except financialintermediaries (i.e. Banks, NBFCs, FinancialInstitutions etc) are eligible borrowers.Individuals, trust and non-profit making
organizations are not eligible to raise ECB
-
7/30/2019 Ecb, Gdrs and Adrs
4/12
AUTOMATIC ROUTE (ECB)
Recognized Lenders : Borrowers can raise ECBfrom internationally recognized sources such asInternational Banks, International capital markets,Multilateral financial institutions, export creditagencies, suppliers of equipment etc.
Individual Lenders such as supplier of equipmentshas to obtain a certificate of due diligence fromand overseas bank indicating that the lendermaintains an account with the bank for at least aperiod of two years. Other documents such asaudited statement of account and income taxreturn which the overseas lender may furnish needto be certified and forwarded by the overseas
bank.
-
7/30/2019 Ecb, Gdrs and Adrs
5/12
APPROVAL ROUTE (ECB)
The following types of proposals for ECB will be
covered under the Approval Route Eligible Borrowers:
Financial Institutions dealing exclusively withinfrastructure or export finance such as IDFC, powerfinance corporation etc will be considered on case tocase basis
Banks and financial institution which had participatedin the textile or steel restructuring package asapproved by the government will also be permitted tothe extent of their investment in the package and
assessment be made by RBI. Any ECB availed forthis purpose so far will be deducted from theirentitlement.
Case falling outside the purview of the automaticroute limits and maturity periods.
-
7/30/2019 Ecb, Gdrs and Adrs
6/12
GLOBAL DEPOSITORY RECEIPTS (GDR)
GDRs are internationally traded equityinstruments. There are issued byinternational depositories and denominated inUS dollars. They represent a fixed ratio of
Indian Shares Quoted on BSE. However thephysical possession of the underlying Indianshares is vested with a custodian based inIndia, who acts as an agent for the
depositories concerned. GDRs are negotiablecertificates and are freely trades in financialmarkets of US and Europe
-
7/30/2019 Ecb, Gdrs and Adrs
7/12
PROCEDURE (GDR)
In the run-up to GDR issue, the company thatseeks to issue GDRs has to pass a resolutionin its Board to that effect. An application isthen made to the Ministry of Finance, whileaccording the approval, MOF accordsapproval for a specified price range only asthe finalization of the pricing aspect isconcluded just before the issue opens,having regard to the prevailing market
conditions The shares are issued by the company to the
depository only and the shares are registeredin the books of company in the name of
depository only.
-
7/30/2019 Ecb, Gdrs and Adrs
8/12
GDRS
There after the depository issues theGDRs to the ultimate investors which are
freely tradable in major financial markets
The dividend payout is done by thecompany in Rupees to the depository. The
depository makes its own arrangement to
make the dividend payment to the GDRholders. GDR once issued may be
cancelled but only after 45 days period.
-
7/30/2019 Ecb, Gdrs and Adrs
9/12
ADVANTAGES OF GDRS
Issue of GDR enhances the corporate image ofthe company in the international financial circlesas the company becomes more visible, GDRissues are a step in the direction of becoming anestablished global player
With a view to initially attract the potentialinvestors, the pricing of the GDRs is done at adiscount to the domestic prices.
Since GDR holders do not appear in the books ofthe company as equity holders, they are not
subject to the regulatory control span of authoritieslike SEBI etc. unlike FIIs who make directinvestment into Indian papers and thus bear thecurrency fluctuation risk as well.
-
7/30/2019 Ecb, Gdrs and Adrs
10/12
AMERICAN DEPOSITORY RECEIPTS (ADRS)
ADRs are US dollar denominated equity instrumentswidely traded in US financial markets. While GDR aretechnically tradable world over, in reality it is seen mostlytraded only on the Luxemberg and thus catering toEuropean market only. To get entry in to US market one
has to issue ADRs. Issuance of the ADRs requires strict compliance with the
guidelines issued by USD security Exchange RegulationCommission, the counterpart of SEBI in India.
Trading on ADRs can be done by Qualified InstitutionBuyers, Known as QIBs.
The main advantage of the ADR rules is the visible imageof the company that could be created in the US financialmarkets. Entry in to US could be helpful in setting upmutually rewarding business relationship by way of JointVenture etc.
-
7/30/2019 Ecb, Gdrs and Adrs
11/12
Bajaj Auto No Yes
Dr. Reddys Yes Yes
HDFC Bank Yes YesHindalco No Yes
ICICI Bank Yes Yes
Infosys Technologies Yes Yes
ITC No Yes
L&T No Yes
MTNL Yes Yes
Patni Computers Yes No
Ranbaxy Laboratories No Yes
Tata Motors Yes No
State Bank of India No Yes
VSNL Yes Yes
WIPRO Yes Yes
-
7/30/2019 Ecb, Gdrs and Adrs
12/12
Thanks