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Types of Equity Instruments
Equity instruments can be classified into the following categories based on the different characteristics with which they are floated in the market:
Equity shares
Equity shares represent ownership capital, as equity shareholders collectively own the company.
Preference shares
Preference shares refer to a form of shares, which lie in between pure equity and debt. These are shares, which do not carry voting rights.
Warrants
Warrant is a certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit or perpetually. Sometimes a warrant is offered with securities as an inducement to buy.
The warrant acts as a sweetener because the holder of the warrant has the right but not the obligation of investing in the equity at the indicated rate
The above three are instruments that are used in domestic markets. The GDRs and ADRs are instruments used in foreign markets to raise equity.
We will now go ahead with the explanations of GDRs and ADRs and how they can be used to raise finance for an Indian corporate from international markets.