At your service today…
205 – Amit
207 – Chandni Dev
210 – Devarsh Mapuskar
215 – Karan Shetty
217 – Kunal Pradhan
250 – Vindhya Kundnani
FCNR
FCCB
ADR & GDR
FCNR
NRI



Non Resident Indians – person resident outside India
who is a citizen of India or a person of Indian origin who
have settled abroad for indefinite period of stay either for
business or for job
NRI Accounts started in 1990 in India.
To benefit the FX reserves.
Accounts for NRI
Repatriable accounts

Non- Resident External Rupee Account (NRE Account) –
Account maintained in INR.

Foreign Currency Non-Resident (B) Account (FCNR (B)
Account): FC account Maintained in Indian Banks.
Accounts for NRI

Non-Repatriable accounts

Non-Resident Ordinary Rupee Accounts (NRO account)Savings, Current and Time deposits.

Non-Resident Non-Repatriable term Deposits.

Non-residents (Special) rupee (NRSR) Account Scheme with
effect from 15.4.1999.
FCNR Accounts
FCNR
Savings
Account
Current
Account
Recurring
/ FD’s
FC Cheques
Remittances
FCNR
Existing
Accounts
Currency
Notes
 Savings A/C –
 FC earned transferred to
India
 INR
 Rs. 10000 Min Amt
 4% PA
 Current A/C –
 Ideal for NRI’s who earn
ESOP’s from Indian
Companies
 INR
 Rs. 25000 Min Amt
 FCNR Deposits –
 Protect exchange risk
 USD , EUR , GBP , JPY, AUD,
CAD
 Min 1 yr – Max 5 yrs
Settlement
FC / INR
cheque
FCNR
Convert
to INR
A/C
Repay
Loan in
FC / INR
Current Interest Rates
Period
USD
GBP
Euro
JPY
AUD
CAD
1 Yr to < 2 Yrs
1.76%
2.59%
3.17%
1.56%
6.44%
2.85%
2 Yrs to < 3 Yrs
1.64%
2.32%
2.94%
1.37%
5.80%
2.65%
3 Yrs to < 4 Yrs
1.94%
2.57%
3.11%
1.40%
5.84%
2.86%
4 Yrs to < 5 Yrs
2.32%
2.86%
3.31%
1.44%
6.07%
3.07%
5 Yrs only
2.72%
3.14%
3.51%
1.51%
6.19%
3.27%
Features and Benefits






Attractive interest rate in FC Deposits
Rupee overdraft upto 90% of deposit value
Part Repatriation
Tax benefit. Income earned from interest not taxable in
India.
Maintained in FC – No FX risk.
Loans on certain percentage of FCNR accounts can be
availed
Repatriation
Example
Opening
USD
Rate
INR
1000
50
50000
Closure
1250
P/L
USD
40
Profit
of
$250
50000
250
Loss of
$90.909
Opening
USD
Rate
INR
1000
50
50000
55
50000
Closure 909.0909
P/L
USD
-90.909
Current State
Current NRI Deposits in India (US$ Billion)
FCCB
Foreign
Convertible Bonds
What is a BOND?
What is a BOND?
A Bond is simply an Instrument; in which an investor agrees to
loan money to a company or government in exchange for a
predetermined interest rate.”
When a corporation needs funds, one way is to arrange funds
is from banks or borrow money. But a generally less expensive
way is to issue (sell) bonds.
The organization agrees to pay some interest rate on the
bonds and further agree to redeem the bonds (i.e., buy them
back) at some time in the future (the redemption date).
What is FCCB?
• Foreign Currency Convertible Bond is a type of
convertible bond issued in a currency different
than the issuer&apos;s domestic currency.
• It is a quasi-debt instrument which are
attractive to both investors and issuers. The
investors receive the safety of guaranteed
payments on the bond and are also able to
take advantage of any large price appreciation
in the company&apos;s stock.
• Due to the equity side of the bond, which adds
value, the coupon payments on the bond are
lower for the company, thereby reducing its
debt-financing costs.
Total Outstanding FCCB’s
Issue OF FCCB’s
• An Indian company or a body corporate, created
by an Act of Parliament may issue FCCBs not
exceeding US $ 500 million in any one financial
year to a person resident outside India under
the automatic route, without the approval from
Government or the Reserve Bank.
• Where the amount of fund to be raised is to be
USD 20 million or less the minimum maturity
period should be not less than three years.
• If the amount to be raised is more than USD 20
million and upto 500 million the minimum
maturity period should not be less than 5 years.
• FCCBs upto USD 20 million can also carry a call
and put option provided the option shall not be
exercised until minimum maturity period of 3
years has expired.
WHY FCCBS ARE POPULAR?
• Being hybrid instruments, the coupon rates on
FCCB are particularly lower than pure debt or
zero, thereby reducing the debt financing cost.
• FCCB are book value accretive on conversion.
• Saves the risk of immediate equity dilution as in
the case of public shares.
• Lucrative offer for investors :• Assured returns to investors on bond in the
form of fixed coupon rate payments.
• Ability to take advantage of price appreciation
in the stock by means of warrants attached to
the bonds, which are activated when price of a
stock reaches a certain point.
• Significant Yield to Maturity (YTM) is
guaranteed at maturity. Lower tax liability as
compare to pure debt instruments due to lower
coupon rates.
REMEDIES TAKEN BY GOVERNMENT
• Promoters or issuers of foreign currency convertible
bonds (FCCBs) may be allowed to buy back the
bonds if they go in for prepayment.
• Also, promoters are likely to be allowed to utilise
the unused portion of the foreign currencydenominated borrowings parked overseas. This
could also be utilised to meet the redemption
pressure after the bonds mature.
• It has now been decided to permit premature
buyback of FCCBs. For the buyback of FCCBs out of
rupee resources the RBI has fixed a minimum
discount of 25% on the book value. The amount of
the buyback is limited to US $50 mn of the
redemption value per company wherein this
window will be kept open till March 09.
• To Buyback FCCB out of Foreign Currency minimum
discount of 15% on the book value.
Indian Scenario
• Reliance Communication would most likely be the first company to
announce buy back of its Foreign Currency Convertible Bonds
(FCCBs)
• R-Com had issued zero-coupon FCCBs in February 2007, to raise
USD 1 billion. The bonds are now trading at a 35% discount to the
issue price, meaning, its bonds worth has now come down to
US$650 million
• RCom, as it currently has over Rs.100 billion in cash reserves, which
also includes about US$ 600 million worth of investments in mutual
funds overseas
• This move to buy back by Rcom is good, as it would help the
company reduce its liability and also bring down its forex exposure.
• Tata Motors has cumulative outstanding FCCBs worth
Rs.44.87bn.
• Compared to current market price of Rs.152 the FCCB’s is
at a 85% discount compared to the conversion price.
Considering the large capex program planned by the
company and the downturn in automobile industry, shut
down of production facilities, likely increase in
borrowings to fund JLR, it could face difficulties in terms
of cash flow management in near term future and is
unlikely to opt for pre-payment option for FCCBs.
• Thus many companies Like Tata Motors which are already
under high debts are unlikely to buyback due to limited
cash flows
• Examples:SUBEX,AMTEK AUTOS,HOTEL LEELA et al.
• Also $50million sum with limit of 25% discount is only a
small step for large FCCB issues.Many companies will not
be able to meet the requirements.
Impact
• Two to three years back Indian markets were on high
growth and FCCBs became popular for raising funds
from overseas market.
• With the fall in the market, many FCCBs has gone
down, which means no money and more problem in
the market.
• Issuing companies will now have to search for
resources to repay the debt along with redemption
period whenever it matures. For this companies will
seek to fresh borrowings, with high interest rates,
which in turn would impact their profitability.
• Another option, which companies have is to reset the
conversion clause, to bring it closer to reality.
ADR & GDR
Depository Receipt
• Negotiable (transferable) financial security
• Foreign publicly listed company
COMPANY SHARE
• Physical certificate
• TYPES -
ADR
GDR
IDR
DEPOSITARY BANK
INVESTOR
What is ADR
• ADR- American Depositary Receipts
A negotiable certificate issued by a U.S. bank
 First Introduced in 1927
Represents a specified number of shares of a
foreign company
ADRs are denominated in U.S. dollars.
How does ADR/GDR work ?
• Let us take Infosys example – trades on the Indian stock at around
Rs.2000/• This is equivalent to US$ 40 – assume for simplicity
• Now a US bank purchases 10000 shares of Infosys and issues them in
US in the ratio of 10:1
• This means each ADR purchased is worth 10 Infosys shares.
• Quick calculation means 1 ADR = US $400
• Once ADR are priced and sold, its subsequent price is determined by
supply and demand factors, like any ordinary shares.
Process for ADR/GDR
Releases Equity Shares
Requests the bank to
release of equity
Shares
Requests for buying
ADR/GDR
Gives Instructions to
Issue ADRs/ GDRs
Issue
ADRs/GDRs
Types of ADR
Types of ADRs
Unsponsored
Level I
Sponsored
Level II
Level III
Private placement
Unsponsored ADR
Sponsored ADR
• Initiated by the issuer
• Exemption from full SEC reporting requirements
• Depositary agreement is executed between the issuer and one selected
depositary bank
• Traded over the counter only
• Capital raising is not permitted
• Comply with the SEC's full registration and reporting requirements
• Comply with the SEC's other disclosure rules
• Can be listed any of the stock exchange
• Recognition
• It is more expensive and time-consuming
•Similar to Level II ADRs
•Allows the issuer to raise capital through a public offering of ADR
•SEC reporting is more onerous
•More expensive than Level I and II ADRs
Restricted ADR
• 144-A
• Known as a Restricted ADRs (RADR)
• Sale is made to only QIBs
• Easy access to Private placement market of US
• Regulation S
• Shares are not registered with any United States securities regulation
authority.
• Shares are registered and issued to offshore, non-US residents.
GDR – Global Depositary Receipts
A bank certificate issued in more than one country for shares in
a foreign company
Offered for sale globally through the various bank branches
Shares trade as domestic shares
GDR – CUSTODIAN BANK –
DEPOSITORY BANK
• Custodian Bank located in same country
• Works with the Depository Bank and follows instructions
from the depository bank.
• Collects, remits dividends and forwards notices
received from the depository bank.
GDR MARKET
• GDRs can be created or cancelled depending on demand and suply
• When shares are created, more corporate stock is placed in the
custodian bank in the depositary bank account
• The depositary bank then issues the new GDRs
• Factors governing GDR prices are company track record, analysts
recommendations, relative valuations, market conditions and also
international status of the company
GDR Listing
•
•
•
•
•
London Stock Exchange
Luxembourg Stock Exchange
DIFX
Singapore Exchange
Hong Kong Exchange
Difference between ADR and
GDR
• Both ADR and GDR are depository receipts, and represent a claim on
the underlying shares. The only difference is the location where they
are traded.
• Depositary receipts traded in USA – ADR
• Depositary receipts traded in a country other than USA - GDR
India- ADR and GDR
• ADRs and GDRs are an excellent means of investment for NRIs and
foreign nationals wanting to invest in India
• By buying these, they can invest directly in Indian companies without
going through the hassle of understanding the rules and working of the
Indian financial market – since ADRs and GDRs are traded like any
other stock
• NRIs and foreigners can buy these using their regular equity trading
accounts
Indian Companies using ADR/GDR
COMPANY
ADR
GDR
Bajaj Auto
Dr. Reddys
HDFC Bank
Hindalco
ICICI Bank
Infosys Technologies
ITC
L&T
MTNL
Patni Computers
Ranbaxy Laboratories
Tata Motors
State Bank of India
VSNL
WIPRO
No
Yes
Yes
No
Yes
Yes
No
No
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Thank you...