THE GLOBAL DIMENSION
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need for a continuous effort to maintain positive investor relations,
both of which are very costly.
It is not necessarily easy for a company to raise equity globally for
the first time. They must raise their profile to foreign investors and
demonstrate a good track record. In general, investment bankers advise
firms to begin the process by issuing bonds abroad first rather than
equity.
American Depositary Receipts (ADRs) are certificates issued by inter-
national banks that represent underlying shares issued in a company's
home market. Shares are held on deposit by the bank to guarantee the
ADRs and are regulated by the US authorities; this often makes ADRs
more attractive to investors, particularly in the US, than purchasing
shares on the country's home stock exchange, which can be expensive
and problematic for foreigners.
The goal for most companies is to issue shares on the London Stock
Exchange, NASDAQ, or the New York Stock Exchange. These markets
provide the most liquidity and greatest access to investors globally.
The intense public scrutiny that comes with such a high profile listing
means that firms need to have a good business story to tell troubled
firms from small countries are unlikely to find that global equity issues
lead to a happy ending.
As with equity, the cost of borrowing abroad may be cheaper.
Although debt may be easier to raise abroad than equity, international
debt has special problems because of fluctuating exchange rates and
interest rates. As with any borrowing, companies need to try to match
the length of time of the loan to their capacity to repay. There is a very
wide variety of debt instruments available globally, ranging from very
short-term loans from banks to bonds with a maturity of many years.
The cost and availability of these depend greatly on the credit rating
of the firm itself and of its home country, but overall, most firms have
far fewer constraints and a better range of choices when borrowing
abroad than they do at home. Types of borrowing available include the
following.
» International bank loans lines of credit and syndicated loans (for
large sums) offer flexibility and comparatively low interest rates.
