The big ticket: IDRs will allow global blue chip corporation to tap India capital

A genuinely global company, business wonks argue, is not just one that has most revenues from markets outside the home consumption market, but one that also has most of its shareholders residing outside the home capital market. Ask if there exist any such firms, and you'll have 'global' CEO after red-faced CEO clearing his throat in the hope of a quick change in topic.

Tough luck for them. For it would indeed be a strange sort of global company that leaves out a sixth of the world's potential investors. Face it: a global company should be globally owned. With the recent announcement made by the Department of Company Affairs (DCA), it is no longer India's own exclusionist policies that are preventing shareholder globalisation from going the way it ought to-towards a global spread-as the new century progresses.

The Invitation

From one perspective, the issue is one of granting resident Indians access to shares in companies incorporated and listed for public trading on stockmarkets overseas. From another, it's one of allowing foreign companies direct access to Indian capital.

Barely a month ago, the Reserve Bank of India (RBI) loosened its foreign exchange regulations to let each Indian investor buy foreign shares of a sum no more than $25,000 (Rs 1,15,000) per year. That granted Indians more investment freedom. Now, the DCA has actually invited foreign firms to raise capital in India. It has allowed corporate entities across the globe to float Indian Depository Receipts (IDRs) on Indian bourses.

As the term suggests, an IDR is a security issued by a company incorporated abroad to an Indian investor, granting him exposure to a foreign asset-typically, an equity share if it's a one-to-one receipt. The IDR can, of course, be traded in the Indian secondary market, in rupees. Now, this security's value is 'mapped' one-to-one to the underlying share's value, not just for market trading purposes, but also in terms of the returns and risks. You get the rupee-equivalent dividends, and you risk as much as any investor in the original share abroad.

Which firms can issue IDRs? By the eligibility criteria, the issuing company has to have a pre-issue paid up capital of $100 million (Rs 460 crore) and average revenue of $500 million (Rs 2,300 crore) for three financial years prior to the issue. It should have made profits and declared dividends of at least 10 per cent for five years preceding the issue. The procedure also requires that the repatriation of IDR issue proceeds be subject to the country's foreign exchange laws. The ruling also restricts IDRs from being converted into underlying equity shares for at least a year from the date of issue. Also, an IDR issue in a fiscal year will not be allowed to cross 15 per cent of the issuing company's net worth.

Who can invest in IDRs? Resident Indians, firms incorporated in India and also FIIs, apart from NRIs, foreign nationals resident or empoyed in India, subsidiaries of global corporations and foreign funds registered in India. Not, however, foreign venture capital investors and venture capital funds.

Happy Or Confused?

Indian investors seem both happy and confused by the invitation. Happy, because it implies a wider investment choice. Confused, because it's not clear whether the move makes any substantive difference. Are worthy foreign firms ready to issue IDRs? Can one really hope to mirror Warren Buffett's wonder portfolio? "The existing good foreign companies listed on bourses have either got themselves delisted or are wanting to be delisted from the exchanges," argues Manish Shah, Head, Retail and Internet Businesses, Motilal Oswal Securities, "why, then, would these companies tap Indian markets through the IDR route?"

And it's only the bluest of chips Indian retail investors should risk at this stage, advises Gaurang Mehta, Head, Investment Banking, ILFS Investsmart. And for that, mutual funds may still be the best route. "When you buy a fund," says Rajat Jain, CIO, Principal Mutual Fund, which was the first out with a foreign portfolio fund after RBI's $25,000 bonanza, "you get a portfolio of such stocks, thus diversifying your risk while getting the right equity exposure."

Would Microsoft, IBM, The Coca-Cola Company et al ever issue IDRs? According to Anup Bagchi, CEO, ICICI Direct, there are two types of companies that are likely to: foreign companies with operational exposure to India and liability in dollars, and foreign companies with Indian promoters. "For the former, it would be a good bet as a hedge against the currency risk," he elaborates, "and for the latter, they would get exposure to India at a relatively low compliance cost."

There's yet another reason blue chips might issue IDRs-to advertise themselves as real promoters of globalisation, rather than 'Coca-Colonisation' of global consumption.

Wish Fulfilment

Personal loans are yours for the asking. But are they a sensible option?

By Shilpa Nayak

The halving of interest rates over just two years has ensured an ample supply of credit to the public at large, encouraging lots of people to go for home and car loans. But loans for 'personal' purposes? Unsecured disbursements of cash to do anything you like? Those sort are readily available too, and consumers are often at a loss on what to make of them. Are such loans worth taking?

Personal loans granted by banks are typically for short periods, with annual interest rates ranging from 14-to-16 per cent-which is expensive compared to other loans, since these have no collateral for the bank to claim in case of default. The attractive part, however, is that these loans are still cheaper than what you pay on the rolling facility of a credit card (some 36 per cent). Moreover, personal loans can replace plastic usage to an extent. "The flexibility is, in fact, the biggest unique selling proposition (USP) of a personal loan," says S. Ramakrishnan, Head, Retail Assets, HDFC Bank. "A borrower is free to decide the end use of the money borrowed, whether it is a holiday or music system or piece of furniture." Though loan-seekers for stock speculation are dissuaded by banks, those seeking to bridge a momentary shortfall in finances are welcome. Young couples, for example, feathering their nests.

If it's a consumer durable you're eyeing, though, do check if a low-interest loan is already being offered by some agent keen to push his wares-that may well be cheaper. Bear in mind, though, that there is really no such thing as a 'zero-interest' loan; it's mainly trick packaging (and not banking generosity).

What else are people using the facility for? Some, according to Gaurang Shah, Head, Retail Assets, Kotak Mahindra Bank, are using personal loans to lighten their credit card burden. House buyers are using personal loans as a margin-bridging device: to cough up the 15-per cent they must put down for a home loan.

Of course, there could be myriad other uses. A doctor, for example, could take a personal loan to part-fund a clinic. Or a distributor could stock himself up for some advantage to be gained later on.

The banks, however, are most comfortable extending personal loans to salaried people. For most of them, the best use of a personal loan could simply be for a vacation-that badly needed dream holiday that keeps getting put off for lack of ready cash. Got some nice Mediterranean island in mind?