The following points highlight the top four international capital market instruments. They are: 1. Global Depository Receipts 2. Foreign Currency Convertible Bonds 3. American Depository Receipts 4. External Commercial Borrowing.

Instrument # 1. Global Depository Receipts:

Global Depository Receipt (GDR) is an instrument which allows Indian Corporate, Banks, Non- banking Financial Companies etc. to raise funds through equity issues abroad to augment their resources for domestic operations.

As per the recent guidelines on issue of GDR, a corporate entity can issue any number of GDR issues in a year and the corporate involved in infrastructure projects need not have a past track record of financial performance.

A GDR is a dollar denominated instrument of a company, traded in stock exchanges outside the country of origin i.e., in European and South Asian Markets. It represents a certain number of underlying equity shares.


Though the GDR is quoted and traded in dollar terms, the underlying equity shares are denominated in rupees only. Instead of issuing in the names of individual shareholders, the shares are issued by the company to an intermediary called the ‘depository’, usually in Overseas Depository Bank, in whose name the shares are registered.

It is the depository, which subsequently issues the GDR to the subscribing public. The physical possession of the equity shares will be with another intermediary called the ‘custodian’, who is an agent of the depository. Though the GDR represents the company’s shares, it has a distinct identity and does not figure in the books of the company.

Instrument # 2. Foreign Currency Convertible Bonds:

Foreign Currency Convertible Bonds (FCCBs) are issued in accordance with the scheme and subscribed by a non-resident in foreign currency and convertible into ordinary share of the issuing company in any manner, either in whole or in part on the basis of only equity related warrants attached to debt instrument. The FCCB is almost like the convertible debentures issued in India.

The Bond has a fixed interest or coupon rate and is convertible into certain number of shares at a prefixed price. The bonds are listed and traded on one or more stock exchanges abroad. Till conversion the company has to pay interest on FCCBs in dollars (or in some other foreign currency) and if the conversion option is not exercised, the redemption also has to be done in foreign currency. The bonds are generally unsecured.

Instrument # 3. American Depository Receipts:


A foreign company might make issue in U.S. by issuing securities through appointment of Bank as depository. By keeping the securities issued by the foreign company, the U.S. Bank will issue receipts called American Depository Receipts (ADRs) to the investors.

It is a negotiable instrument recognizing a claim on foreign security. The holder of the ADRs can transfer the instrument as in the case of domestic instrument and also entitled for dividends as and when declared.

The ADR holder can ask the bank for the original foreign security by exchanging the ADR. The Bank will act as a custodian for the investors. An ADR can be described as a negotiable instrument denominated in US dollars, representing a non-US Company’s local currency equity shares or known as depository receipts.

These are created when the local currency shares of an Indian Company are delivered to an overseas depository bank’s domestic custodian bank, against which depository receipts in US dollars are issued. Each depository receipt may represent one or more underlying shares. These depository receipts can be listed and traded as any other dollar denominated security.


The disclosures as required under the Securities Exchange Commission’s (SEC) regulations are stringent and onerous. In order to protect the investor, the SEC places the onus on the issuer company, its officers and directors to ensure that the prospectus does not contain any misstatement or omissions which are material in nature.


To Indian Company:

(a) Better corporate image both in India and abroad which is useful for strengthening the business operations in the overseas market.


(b) Exposure to international markets and hence stock prices in line with international trends.

(c) Means of raising capital abroad in foreign exchange.

(d) Use of the foreign exchange proceeds for activities like overseas acquisitions, setting up offices abroad and other capital expenditure.

(e) Increased recognition internationally by bankers, customers, suppliers etc.


(f) No risk of foreign exchange fluctuations as the company will be paying the interest and dividends in Indian rupees to the domestic depository bank.

To Overseas Investors:

(a) Assured liquidity due to presence of market makers.

(b) Convenience to investors as ADRs are quoted and pay dividends in U.S. dollars, and they trade exactly like other U.S. securities.


(c) Cost-effectiveness due to elimination of the need to customize underlying securities in India.

(d) Overseas investors will not be taxed in India in respect of capital gains on transfer of ADRs to another non-resident outside India.

Instrument # 4. External Commercial Borrowing:

External Commercial Borrowings (ECBs) is a borrowing of over 180 days. ECB is the borrowing by corporate and financial institutions from international markets. ECBs include commercial bank loans, buyers credit, suppliers credit, security instruments such as floating rate notes and fixed rate bonds, credit from export-credit agencies, borrowings from international financial institutions such as IFC etc.


The incentive available for such loans is the relative lower financing cost. ECB’s can be taken in any major currency and for various maturities. ECBs are being permitted by the Government for providing an additional source of funds to Indian corporate and PSU’s for financing expansion of existing capacity as well as for fresh investment to augment the resources available domestically.

ECBs are approved with an overall annual ceiling. Consistent with prudent debt-management keeping in view the balance of payments position and level of foreign exchange reserves.