Chapter 14
Funding the Multinational Firm
◼ Learning Objectives
1. Design a strategy to source capital equity globally
2. Examine the differences in the optimal financial structure of the multinational firm
compared to that of the domestic firm
3. Describe the various financial instruments that can be used to source equity in the global
equity markets
4. Understand the role of depositary receipts in raising equity
5. Analyze the unique role private placement enjoys in raising global capital
6. Explore the different structures that can be used to source debt globally
7. Detail the alternative methods of structuring and funding foreign subsidiaries
◼ Chapter Outline
I. Designing a Strategy to Source Capital Globally
A. Alternative Paths to Globalize the Cost and Availability of Capital
II. Optimal Financial Structure
B. Optimal Financial Structure and the Multinational
Availability of Capital
Diversification of Cash Flows
Foreign Exchange Risk and the Cost of Debt
Expectations of International Portfolio Investors
III. Raising Equity Globally
A. Initial Public Offering (IPO)
B. Euroequity Issue
C. Directed Public/Private Issues
IV. Depository Receipts
A. ADR Mechanics
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5. Three Keys to Global Equity. What are the three key elements related to raising equity
capital in the global marketplace?
6. Global Equity Alternatives. What are the alternative structures available for raising
equity capital on the global market?
7. Directed Public Issues. What is a directed public issue? What is the purpose of this kind
of an international equity issuance?
8. Depositary Receipts. What is a depositary receipt? What are equity shares listed and
issued in foreign equity markets in this form?
9. GDRs, ADRs and GRSs. What is the difference between a GDR, ADR, and GRS? How are
these differences significant?
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10. Sponsored and Unsponsored. ADRs and GDRs can be sponsored or unsponsored. What
does it mean and will it matter to the investors purchasing the shares?
11. ADR Levels. Distinguish between the three levels of commitment for ADRs traded in the
United States.
12. IPOs and FOs. What is the significance of IPOs versus FOs?
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17. Private Equity. What is private equity and how do private equity funds differ from
traditional venture capital firms?
18. Bank Loans Versus Securitized Debt. What is the advantage of securitized debt
instruments sold on a market versus bank borrowing for multinational corporations?
19. International Debt Instruments. What are the primary alternative instruments available
for raising debt on the international marketplace?
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22. Local Norms. Should foreign subsidiaries of multinational firms conform to the capital
structure norms of the host country or to the norms of their parent’s country?
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23. Internal Financing of Foreign Subsidiaries. What is the difference between “internal”
financing and “external” financing for a subsidiary?
24. External Financing of Foreign Subsidiaries. What are the primary alternatives for the
external financing of a foreign subsidiary?