As homegrown corporates explore opportunities to raise funds in the capital market for capacity expansions, it may be just the occasion to dwell upon the shortcomings of the domestic capital market.
MUMBAI: As homegrown corporates explore opportunities to raise funds in the capital market for capacity expansions, it may be just the occasion to dwell upon the shortcomings of the domestic capital market. This, among other issues, formed the agenda of the International Financing Review Conference here on Tuesday, aptly titled “India: Latest trends in international finance.”
The domestic capital market’s shortcomings are many, the participants noted. One, regulations are getting stricter by the day and as a result, approvals take considerable time. Two, high commissions and steep distribution and marketing costs make it an expensive market.
Moses Harding, executive vice-president and group head (wholesale banking) of IndusInd Bank, said: “Worse, the Indian capital market lack depth.” What Harding means is this. Appetite for structured products and debt papers is very low, which affects the liquidity of these products and papers.
What then is the solution? Offshore fund raising may be a solution for those who can do it. What then are the offshore options?
The options range from American depository receipts (ADRs) and global depository receipts (GDRs) to foreign currency convertible bonds (FCCBs) to external commercial borrowings to listing on London Stock Exchange’s Alternative Investments Market (AIM). While GDRs and ADRs are bank certificates issued in more than one country for shares in a foreign company, FCCBs are hybrid instruments with the traits of both debt and equity.
For the uninitiated, GDRs and ADRs trade as domestic shares and are offered for sale globally through various bank branches. ECBs, on the other hand, are foreign currency funds in the form of bank loans, buyer’s credit, suppliers’ credit and securitised instruments like floating rate notes and fixed rate bonds.
As for the AIM, not only are membership rules less onerous than for the FTSE-100, but also “tax breaks exist to encourage investment in AIM stocks,” Subrata Mukherji, managing director and CEO of ICICI Securities pointed out.
There are thus options galore abroad for those who will. So, why not circumvent the difficulties in the domestic capital market and raise capital more efficiently?
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