What is International Capital Marketing?

International Marketing also refers to global marketing and is a huge source of capital. It refers to marketing conducted by companies overseas or across national boundaries. International Marketing has been made possible because of three steps - Liberalization, Privatization and Globalization, or LPG.

Prior to 1991, Indian companies were not allowed to raise capital from overseas capital markets.  For their foreign exchange requirements, they had to depend on government financial institutions, foreign banks, international development agencies etc. By mid 1991, due to the liberalization of the Indian economy, Indian corporates were allowed to issue shares and bonds in overseas capital markets.

The term ‘Euro Issue’ refers to the issue that is made abroad through foreign currency denominated securities, where securities are listed on any overseas stock exchange. Indian companies get their issues listed on Luxembourg Stock Exchange. Subscription for such securities can come from any part of the world, except India.  Companies making a Euro Issue can issue depositary receipts, foreign currency convertible bonds or pure debt bonds.  Depository receipts and foreign currency convertible bonds are more popular among investors.

Depository receipts are of two types:

(i) Global Depository Receipt

(ii) American Depository Receipt

Global Depository Receipt (GDR)

A GDR is a negotiable certificate that represents a company’s one or more publicly-traded (listed on the stock exchange) or to be publicly – traded (soon to be listed on the stock exchange) equity shares. GDRs are issued by the Overseas Depository Bank to non-resident investors.

GDRs are freely transferable outside India without any reference to the issuing company.  If a GDR holder wants to exchange his GDR for shares, he can surrender his GDR to the Overseas Depository Bank.  The Overseas Depository Bank will instruct the Domestic Custodian Bank to release the shares. In this way, GDRs are converted into shares and shares can also be converted into GDRs.

American Depository Receipt (ADR)

American Depository Receipts are issued by companies in the United States. ADRs have to be listed in some US stock exchanges.  Such receipts have to be issued in accordance with the provisions stipulated by the Securities and Exchange Commission of USA.  These provisions are very strict and need to be adhered to seriously.

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