Article on Euro Issues - Iim L
EURO ISSUES - GLOBAL DEPOSITORY RECEIPTS
By Sameer Chaini
INTRODUCTION
Many large companies in India require foreign exchange for importing vital capital goods. In the early eighties, India’s rating in the international credit market stood high. So, Indian companies with strong finances and which could offer acceptable security could get foreign currency loans from international banks for meeting their foreign exchange requirements. The acceptable security was a guarantee given by a bank or a financial institution in India. In the early nineties, the foreign exchange reserves of the country dwindled. The Indian economy was also weak. On account of these, India’s credit rating fell below ‘investment grade’. At that time, Indian companies were finding it difficult to obtain loans from international banks. Hence, many Indian companies had to approach the EXIM bank of India and other financial institutions like ICICI who had foreign lines of credit from International Finance Corporation or other international agencies, for foreign currency loans. By middle of 1991, the liberalization of the Indian economy was set in motion. There was an earnest attempt to integrate India with the global market. The emerging transparency and decontrols attracted the attention of many foreign investors. The foreign equity investors appreciated the liberal policies of the Indian Government and identified huge stakes in the emerging Indian capital market. In February’92, while presenting the budget, the finance minister announced government’s decision to allow the FIIs to invest in the Indian capital market and to allow Indian companies with good track record to float their stocks in foreign markets with a view to augmenting the forex reserves of the country. So far, Indian companies floating GDRs have been following the route of Rule 144A of SEC for issuance of GDRs. Primary reason for doing so is that by issuing securities under Rule 144A, there is no need
By Sameer Chaini
INTRODUCTION
Many large companies in India require foreign exchange for importing vital capital goods. In the early eighties, India’s rating in the international credit market stood high. So, Indian companies with strong finances and which could offer acceptable security could get foreign currency loans from international banks for meeting their foreign exchange requirements. The acceptable security was a guarantee given by a bank or a financial institution in India. In the early nineties, the foreign exchange reserves of the country dwindled. The Indian economy was also weak. On account of these, India’s credit rating fell below ‘investment grade’. At that time, Indian companies were finding it difficult to obtain loans from international banks. Hence, many Indian companies had to approach the EXIM bank of India and other financial institutions like ICICI who had foreign lines of credit from International Finance Corporation or other international agencies, for foreign currency loans. By middle of 1991, the liberalization of the Indian economy was set in motion. There was an earnest attempt to integrate India with the global market. The emerging transparency and decontrols attracted the attention of many foreign investors. The foreign equity investors appreciated the liberal policies of the Indian Government and identified huge stakes in the emerging Indian capital market. In February’92, while presenting the budget, the finance minister announced government’s decision to allow the FIIs to invest in the Indian capital market and to allow Indian companies with good track record to float their stocks in foreign markets with a view to augmenting the forex reserves of the country. So far, Indian companies floating GDRs have been following the route of Rule 144A of SEC for issuance of GDRs. Primary reason for doing so is that by issuing securities under Rule 144A, there is no need