External Commercial Borrowings, Depository Receipts and International Bonds

Beyond FDI and FPI, a business looking to raise international finance -- particularly a larger company that wants to tap global lenders and investors directly -- has several other well-established instruments available to it: External Commercial Borrowings, Global and American Depository Receipts, and International (or Euro) Bonds.

External Commercial Borrowings (ECBs) are loans that a domestic company raises from recognised lenders outside the country -- such as foreign banks, international capital markets, or foreign equipment suppliers -- and which are denominated in a foreign currency (or, in some structures, in the domestic currency but sourced from foreign lenders). Companies use ECBs mainly to fund long-term needs such as capital expenditure, expansion of manufacturing capacity, or infrastructure projects, since ECBs can often provide access to funds and interest terms not readily available domestically. Because they are raised abroad and generally must be repaid in the foreign currency in which they were borrowed, ECBs expose the borrowing company to exchange-rate risk, and in India such borrowings are also subject to end-use conditions and regulatory oversight (for example, RBI/FEMA compliance) to ensure the funds are used for approved purposes and that the country's external borrowing remains within manageable limits.

A Global Depository Receipt (GDR) is a negotiable certificate issued by a depository bank, representing a specified number of shares of a foreign company. The depository bank holds the underlying shares (usually in the company's home market) and issues receipts against them that can then be bought and sold by investors on stock exchanges outside that home market -- GDRs are most commonly listed and traded on European exchanges. This lets a company raise equity capital from a wide pool of international investors without directly listing its own shares on a foreign stock exchange. An American Depository Receipt (ADR) works on exactly the same principle, except that it is specifically structured and listed for trading on stock exchanges in the United States; in short, a GDR and an ADR are essentially the same kind of instrument, differentiated mainly by the market in which they are issued and traded. …