Investment Management in I. B.

8/3/2019 Investment Management in I. B.

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Investment Management

in International Business

Prof: Sham Choughule

International Finance Management



International Finance Management

Foreign Direct Investment

FII –Foreign Institutional Investment

Off shore Banking Foreign Exchange Market & exchange rate

Resource Mobilization though GDR/ADR

Other options of finding –ECB

Letter of credit

Line of credit of EXIM Bank



International investment theory

1)Ownership advantage Theory –Operations & Brand Manufacturing and positioning of well established brand

Domestic competitive advantage cash in world market

2) International Theory

Through various entry mode –Export- licensing-franchising –contracting arrangement etc

Reasons of foreign entry –your project

3) Dunning’s Electic Theory

Location advantage – Manufacturing unit raw material available –

Natural resources/ –TATA Jamshedpur –PASCO

Human resources- India China



Some news related to FDI

China drew 29% FDI in July 09 despite labour unrest in the country

Global retailers are trying for FDI into India

Jairam Ramesh for removing ban on FDI from

Pakistan

UNCTAD predicts slight recovery in FDI flows

India will be 3 rd largest FDI recipient in 2010-12



Meaning of FDI

FDI is the ownership and control over assets

held in foreign country

It usually involves participation in

Management,

joint-venture,

transfer of technology and expertise.

http://en.wikipedia.org/wiki/Management

http://en.wikipedia.org/wiki/Joint-venture

http://en.wikipedia.org/wiki/Transfer_of_technology

http://en.wikipedia.org/wiki/Expertise

http://en.wikipedia.org/wiki/Expertise

http://en.wikipedia.org/wiki/Transfer_of_technology




http://en.wikipedia.org/wiki/Management



Types of FDI

There are three types of FDI: 1)inward foreign direct investment and 2)outward foreign

direct investment, resulting in a net FDI inflow (positive or negative)

Example India’s inflow in 2009- 34.6 Billion USD

India’s out flow in 2009- 14.9 Billion USD

------------------------------------------------------------- Therefore, net inflow is 19.7 Billion USD

--------------------------------------------------------------- TATA acquired Corus 13.6 Billion USD and Jaguar land Rover This

is huge out flow of FDI from India

http://en.wikipedia.org/wiki/Investment

http://en.wikipedia.org/wiki/Investment



Forms of FDI Purchasing existing assets in foreign country

New investment in property/plant /equipment

Example –Hitachi from Japan JV with Indian company BGR Boiler Ltd (TN) to make boiler & turbine for mega

power projects in India Transfer of assets

by incorporating a wholly owned subsidiary or company

Polish Ocean line’s subsidiary was POL india Shipping

Agency Ltd Equity Stake purchasing from foreign company Vedant Resources is trying to purchase stake from Cairn India for

8.5 billion USD to acquire assts in oil field

http://en.wikipedia.org/wiki/Subsidiary

http://en.wikipedia.org/wiki/Company



http://en.wikipedia.org/wiki/Company




India 5 top mega deals in FDI

Indian company Acquired com/assets in year Deal size

TATA steel Corus -2007 13.6 Billion

Vodafone Hutch Essar -2007 10.9 billion

Bharati Airtail Zain (Africa) 2010 10.0 billion

Vedanta India Inc’s Cairn India 2010 9.6 billion

FDI out flow and out flow –India’s top 5 dealings



Forms of FDI

by acquiring shares in an associated enterprise

through a merger or an acquisition of an

unrelated enterprise participating in an equity based joint venture with

another investor or local partner Example –WAN HAI Lines +ESSAR =JV for container

terminal in India WAN HAI 20 %

ESSAR 80%

http://en.wikipedia.org/wiki/Merger

http://en.wikipedia.org/wiki/Takeover

http://en.wikipedia.org/wiki/Joint_venture

http://en.wikipedia.org/wiki/Joint_venture

http://en.wikipedia.org/wiki/Takeover

http://en.wikipedia.org/wiki/Merger



Reason for FDI

>Setting up manufacturing units

L & T set up its manufacturing unit in China

Acquiring technology Intel is acquiring McAfee for 7.7 Bn to run outside security

programme –Intel syatems operate faster or with loger batter life

> Increasing sale & profit

GM has acquired local auto finance company Americredit for 3.5 Billion USD. This acquisition will help to boost sales and provide a captive financing arm



Reason for FDI Technology transfer Indian port sector has opened 100% for foreign company

for transfer technology in Container terminals

Reduce cost Renuka sugar mill acquire sugar mill in Brazil to

reduce raw material cost

Marketing activities

Dabur India buys 3 Turkish cosmetic companies which are marketleader for INR 324 cr

This will help to Dabur India to enter newer product categories andmarkets as well as strengthen its presence in the middle east &North Africa



Cost of FDI

For Home country

Dividend repatriation to original country

Example –Nissan factory at UK

Profit –dividend at UK goes back to Japan Thisinflow helps Japan to strength its Balance of

Payment



Benefit of FDI

Host countries by way of

Capital for production

Technology transfer from developed country to

under development countries



Trend in FDI

Infrastructural projects

Mega power plant

Ports –Hechison –D. P. world Communication –Vodaphone –Black berry



FDI into India since last 3 years

Country 2007-08 2008-09 2009-10 Total1 Mauritius 44,483 50,794 49,633 144.910

2 Singapore 12,319 15,727 11,129 39,341

3 USA 4,377 8,002 9,320 21,609

4 UK 4,690 3,840 3,094 11,624

5 Netherlands 2,780 3,922 4,283 10,985

6 Japan 3,386 1,889 5,670 10,945

7 Cyprus 3,385 5,983 7,728 17,096

8 Germany 2,075 2,750 2,980 7,805

9 France 583 2,089 1,437 4,109

10 UAE 1,039 1,133 3,017 5,189

Total of top 10 79,117 96,129 98,291 128,848

11 Others 19,547 26,896 25,087 216,219

Total 98,664 123,025 123,378 345,067

Financial Year-April to March

Amount in INR Crore

Source: Department of Industrial Policy & Promotion



FDI in India

Some countries have put restrictions onFDI in certain sectors. India, with its

restriction on FDI in the retail sector is anexample

Two route

1) Through R B I

2) Foreign investment Promotional Board



FDI into India since last 10 years =2000 to 2010

Country 2009-10

Cumulative April2000-March2010=10 years

% of totalInflow

1 Mauritius 49,633 213,434 43

2 Singapore 11,129 47,080 9

3 USA 9,320 37,593 7

4 UK 3,094 26,263 5

5 Netherlands 4,283 20,438 4

6 Japan 5,670 18,350 4

7 Cyprus 7,728 17,900 4

8 Germany 2,980 12,571 4

9 France 1,437 7,102 3

10 UAE 3,017 7,054 1

Total of top 10 98,291 407,785

11 Others 25,087

Total 123,378

FDI inflow into India top 10 countries



India has been ranked at the third place in globalforeign direct investments in 2009 and will continueto remain among the top five attractive destinationsfor international investors during 2010-11,according to United Nations Conference on Trade

and Development (UNCTAD



FII –Foreign Institutional Investment

Entry into capital market of India

Debt market through stock exchange and

RBI permission

Investment in to following Instrument

Pension fund

Mutual Fund



Portfolio Investments—FIIs

FIIs can purchase and sell GovernmentSecurities and Treasury Bills within overallapproved debt ceilings.

Moreover, transactions among FIIs with respectto Indian stocks will no longer require post-factoconfirmation from the RBI.

Also, 100 percent FII debt funds have beenpermitted to invest in unlisted debt securities ofIndian companies



Off shore banking An offshore bank is a bank located outside the country

of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial andlegal advantages

SBI in Cape town

BOB in China

Indian Overseas bank on Singapore

Bank of India in China

http://en.wikipedia.org/wiki/Bank

http://en.wikipedia.org/wiki/Tax_haven

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/wiki/Tax_haven

http://en.wikipedia.org/wiki/Bank



Need of off shore banking

In today's economic climate, offshore bankinghas become the logical alternative for discerning

investors who seek to secure their financialfuture and conduct their business privately andaffordably. Whatever offshore asset protectionyou are looking for, choosing to bank offshore

offers a wide range of choices and locationssuitable for each unique situation



OBU-Off shore bank Units in India

Linkage with world capital market from India Banking operations covers only NRI and do not

with domestic banking

This is part of International banking keptseparate from domestic banking with freedom offunctioning

This is integrated part of Euro currency

Banking time suitable to world time zone Example –OBU at SEZ in SSPEZ in Mumbai



Functions

Deposit taking from NRI/investor

lending to MNC in FCC -USD

Banking transaction in Euro currency –USD



Help to formation of Offshore company – Incorporate offshore

Offshore bank accounts - With offshore banking yourfunds are protected, yet accessible to you fromanywhere in the world.Offshore trust formation – Offshore trusts secure your family's financial future.Offshore tax planning - Solid offshore banking advicemeans the money you earn is the money you keep.Discover your offshore tax options today.

Advisory Services of Off shore banking



Offshore Banking Unit

Engagement of an Offshore Banking Unitin any of the forms of business specified in

sub-section (1) of section 6 of the BankingRegulation Act, 1949 shall be only inforeign exchange and shall be subject to

these Regulations and the conditions oflicence issued under the said Act.



GDR

The local currency shares of a companyare delivered to the depository bank.The

depository bank issues depository recepitsagainst these shares.such deposioryreceipts denominated in US dollars are

known as GDR's.



GDR

In the Indian context, A GDR is aninstrument issued abroad by an indian

company to raise funds in some foreigncurrency and is listed and traded on aforeign stock exchange . A holder of GDR

can at anytime convert it in to the no. ofshares it represents



GDR

A holder of GDR does not carry any votingrights but only dividends and capital

appreciation. Many Indian companies suchas Infosys, RELIANCE,WIPRO AND ICICIhave raised money through the issue of

GDR's



ADR

An American Depositary Receipt (ADR) is howthe stock of most foreign companies trades inUnited States stock markets. Each ADR is

issued by a U.S. depositary bank and representsone or more shares of a foreign stock or afraction of a share. If investors own an ADR theyhave the right to obtain the foreign stock it

represents, but U.S. investors usually find itmore convenient to own the ADR.



ADR

The price of an ADR is often close to the price ofthe foreign stock in its home market, adjusted forthe ratio of ADRs to foreign company shares.

Depository banks have numerousresponsibilities to the holders of ADRs and to thenon-U.S. company the ADRs represent. Thelargest depositary bank is The Bank of NewYork. Individual shares of a foreign corporation

represented by an ADR are called AmericanDepositary Shares (ADS).



Indian ADR Trading in US

ADR ISSUESYMBOLINDUSTRYEXCH DR. REDDY'S LABORATORIES LTD. RDY Pharmaceutical NYSE HDFC BANK LTD. HDB Banks NYSE ICICI BANK LTD. IBN Banks NYSE

INFOSYS TECHNOLOGIES LIMITED INFY Technology ServicesNASDAQ MAHANAGAR TELEPHONE NIGAM LIMITED MTE Fixed Line Comm.-

NYSE REDIFF.COM INDIA LTD REDF Technology Services-NASDAQ SATYAM COMPUTER SERVICES LIMITED SAY Technology Services-

NYSE SIFY LTD. SIFY Technology Services NASDAQ VIDESH SANCHAR NIGAM LIMITED VSL Fixed Line Comm.-NYSE WIPRO LTD. WIT Technology Services-NYSE

http://www.drreddys.com/

http://www.hdfcbank.com/

http://www.icicibank.com/


http://www.infosys.com/


http://www.mtnl.net.in/index.htm


http://www.rediff.com/


http://www.satyam.com/


http://www.sify.com/


http://www.vsnl.com/


http://www.wipro.com/
































ECB

Borrowing by the business communityfrom foreign source in foreign currency –

Reason -Interest rate is low LIBOR Indian Government announced as part of

purchase debt management

Disadvantage of use of ECB



Instrument of ECB

Commercial bank loan

Buyer credit

Supplier credit

Securities



Letter of Credit –Financial Instrument

Applicant bank

Advising bank

Beneficiary bank

Confirming bank

Negotiating bank

Reimbursing bank



Line of credit

EXIM bank operate LOC

Use of foreign exchange reserve

Loan to national bank to foreign country

Importer can place order with Indianexporter

Act as re-imbursement bank



Foreign Exchange Market

Currency traded in world financial marketas commodity

Purchase -USD against Home currency Sale- USD against Home currency

Buying on low rate

Selling in high rate This is profit



Foreign Exchange Market

Components of market

AD –authorized dealer

Merchant bank -Foreign exchange Department of commercial

bank

Inter bank –sale and purchase between bank to bank

International -transaction taking place between different countries

FEDAI –Foreign Exchange Dealer Association of India

RBI



Rates

Spot rate

Forward rate

Forward contract



Thanks for your understanding

[email protected]

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Investment Management in I. B.

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