GLOBAL FINANCE

» Euronotes and Euro-commercial paper short to medium-term loans

denominated in currencies that are held outside their own countries
and are thus freer from the risk of government intervention.

» Eurobonds these are medium to long-term debts that are traded

between lenders and sold outside the country in whose currency the
bond is denominated, giving flexibility and freedom from government
regulation. Some of them are equity-related, meaning that they may
be converted for shares on terms set by the borrower.

BEST PRACTICE: NOVO

In the late 1970s, Novo Industri, a Danish pharmaceutical company,
recognized that its cost of capital was higher than its main foreign
competitors and decided to try to escape the limitations of the Danish
securities market to seek finance abroad. Furthermore, it was clear that
the company would never be able to raise enough capital domestically
to fund its promising growth opportunities. Large sums were needed
to finance factories and research, and delays would mean that its
foreign competitors would simply grab control of markets before
Novo could enter them. Novo could not hope to fund its growth by
reinvesting its profits because the process would be too slow and
it would miss the opportunity to expand. The company had a good
track record in its operations and excellent niche market strength
worldwide.

At the time, Danish investors were not allowed to invest in foreign

stocks and bonds in the private sector, so they tended to ignore
developments in foreign securities markets and foreign stock analysts
tended to ignore Denmark. Most Danish firms did not publish annual
reports in English (although Novo did) and did not try to reconcile
or translate their results into US or British accounting principles. High
taxes on share profits had almost completely driven Danish private
investors out of the stock market and price/earnings ratios of firms
were low Novo, like others, was trading at a P/E of 5. Danish stock
prices tended to move up and down in tandem.

In 1978, Novo raised $20mn in convertible Eurobonds outside

Denmark and obtained a listing on the London Stock Exchange. In the
short term this actually increased the cost of capital when investors at
home balked at the convertibility of the bonds, which had the potential