1. Legal Framework in India for Foreign Investment In India the Legal framework for foreign investment in India is segregated primarily in two parts; one governs the investment in capital and the other borrowings. The set of rules that govern the investment in capital is commonly called Foreign Direct Investment (FDI) Regulations. Whereas the set of rules that governs foreign investment in form of borrowings is called External Commercial Borrowing (ECB) Regulations. Let us first have a closer look to what exactly falls under which set of rules. Foreign Direct Investment as the name suggests is the investment made towards core capital of an organization viz. investment in equity shares, convertible preference share and convertible debentures.

2. Till late there was ambiguity about the partially convertible preference shares and debentures being considered as part of Foreign Direct Investment. However in June 2007 the Reserve Bank of India has clarified as follows : Only instruments which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of equity under the FDI Policy and will be eligible to be issued to person’s resident outside India under the Foreign Direct Investment Scheme.

3. Thus it is now crystal clear that the investment in non- convertible or partially convertible preference shares and debentures or any instrument with no definite period for conversion in equity will come under the purview of ECB Guidelines. Moreover any investment as commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years will also come under the purview of ECB Guidelines.

4. Introduction Indian entities began accessing external capital markets towards the end of seventies as gradually the amount of concessional assistance became inadequate to meet the increasing needs of the economy The Indian authorities adopted a selective approach and permitted only a few select banks, all India financial institutions, and large public and private sector companies to access the market

5. Till a few years ago, external commercial borrowings was the major source of non- governmental external funding. By and large, India's borrowings have been by way of syndicated bank loans, buyers' credits and lines of credits We will obtain an overview of the major segments of the global debt markets in terms of funding avenues, general regulatory framework, accessibility and some procedural aspects Examine the analytics of the international financing decisions from the borrower's point of view and risk-return considerations from the investor's point of view

6. The Major Funding Avenues The funding avenues potentially open to a borrower in the global capital markets can be categorised as follows –Bonds : Foreign Bonds and Eurobonds Straight Bonds Floating Rate Notes (FRNs) Zero-coupon and deep discount bonds Bonds with a variety of option features embedded in them

7. The Major Funding Avenues Syndicated Credits –These are bank loans, usually at floating rate of interest, arranged by one or more lead managers (banks) with a number of other banks participating in the loan Medium Term Notes (MTNs) –Initially conceived as instruments to fill the maturity gap between short-term money market instruments like commercial paper and long-term instruments like bonds, these subsequently evolved into very flexible borrowing instruments

8. The Major Funding Avenues Committed Underwritten Facilities –The basic structure under this is the Note Issuance Facility (NIF), these instruments were popular for a while before introduction of risk-based capital adequacy norms rendered them unattractive for banks Money Market Instruments –These are short-term borrowing instruments and include commercial paper, certificates of deposit and bankers' acceptances among others

9. The Major Funding Avenues Another innovation to have emerged during the last decade or so is Project Finance and its novelty lies in the way the financing package is put together including the rights and obligations of the parties involved, allocation of various operating and financial risks to those who are best equipped to bear them, incorporation of various guarantees and so forth

10. The Major Funding Avenues Most of the funding instruments discussed above also have their "domestic" and "offshore" segments Borrowers often access a currency-market segment which offers ease of access, cheaper all-in cost or some other attractive feature and then use swaps to reconfigure their liabilities in terms of currency and interest rate basis

11. The Major Funding Avenues Bond Markets –A bond is a debt security issued by the borrower, purchased by the investor, usually through the intermediation of a group of underwriters Straight Bond Callable Bond Puttable bond Sinking Fund Bond

12. The Major Funding Avenues FRN Zero Coupon Bond Convertible Bond Warrants –A large number of other variants have been brought to the market –Yankee Bonds –Samurai Bonds and Shibosai Bonds –Shogun Bonds and Geisha Bonds

13. The Major Bond Market Segments –Eurobonds : Unregistered, bearer Foreign Bonds : Non-resident issues in a country’s domestic capital market –Yankee Bonds : Public issues in US. Strict regulation – Private placements : Less strict regulation –Samurai Bonds : Public Issues in Japan – Shibosai Bonds,Shogun Bonds and Geisha Bonds Private placements in Japan Swiss and German Bonds : Public Issues and Private placements –Bulldog Bond : UK Public Issues –Rembrandt Bonds : Holland Public Issues