Adr/ gdr

Depositary Receipts???
DRs represent shares of an Indian company trading on a foreign stock exchange The DR holders are part of foreign holding in a company but unlike FDI, investors in DRs do not enjoy voting rights DRs of most Indian companies experienced a sharp fall due to market meltdown. However, recently the DRs have recovered and trading turnovers have improved. DRs have become popular because of two-way fungibility No prior approval of SEBI, RBI or government is required for issue of DRs No restrictions on the use of proceeds except investment in real estate and the stock markets

Indian Companies can raise capital overseas by issue of:

Depository Receipts Global Depository Receipts (GDR) American Depository Receipts (ADR)

Glossary
ADR means security issued by a bank or a depositary in USA against underlying rupee shares of a company incorporated in India. GDR means a security issued by a bank or a depository outside India against underlying rupee shares of a company incorporated in India.

Authorities involved
SECs mission is to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation. IOSCOs mission is the protection of investors, ensuring that markets are fair, efficient and transparent and finally the reduction of systematic risk.

AMERICAN DEPOSITORY RECEIPT

What are ADRs???

Introduced by JPMorgan in 1927 Prices in US Dollar Dividends in US Dollar Traded like shares of US-based company. Stock of non-US companies can trade on US financial markets. Involved banks: depository bank and investment bank Represents fraction of a share, single share or multiple shares of foreign stock

Composite ADR Index...

450 companies 39 countries Listed on
NYSE AMEX NASDAQ

Subsets:
3 Regional Indexes 4 Market indexes 3 Sector indexes 8 Selected Indexes 39 Country Indexes

New ADR are added quarterly Index is rebalanced quarterly

Types...
a) Unsponsored DR Issued by one or more depositories Based on market demand Trade on the over-the-counter market No formal agreement b) Sponsored DR Designated depository acting as ist transfer agency Deposit Agreement or service contract Control over facilities

Create an ADR...
1. 2. 3. Steps : Investor decide to invest in an non-U.S. company Contacts broker to make a purchase Broker purchase actual ordinary shares to depositary banks custodian in the foreign country Broker convert U.S. Dollar received from the investor into the foreign currency On same day shares are delivered to custodian bank Custodian notifies the depository bank DR are issued and delivered to broker Broker delivers DR to investor

4.
5. 6. 7. 8.

How an ADR works?

1. 2. Steps : Dividends are paid Custodian bank received it and witholds any foreign taxes Custodian bank changes currency into U.S. Dollar Custodian bank sends it to depositary bank Depositary bank sends this to investor

3.
4. 5.

Advantages of ADR
Flexibility to list on national exchange in the US Ability to raise capital Increase awareness of company Diversify portfolio Save money by reducing administration costs & avoiding foreign taxes on each transaction Trade is clear and settle in US Dollar

Disadvantages Of ADR...
Only small selection of ADRs available for trading Long time to receive information Depository bank charge fees & expenses for converting currency Country specific risk Currency exchange risk For diversification: enough funds to split in over 15 ADR Political and economical risks

GDRs
It is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros.

Parties Involved
ISSUING COMPANY CUSTODIAN DEPOSITORY LEAD MANAGER UNDERWRITERS FOREIGN INVESTOR

Statutory Requirements
Indian companies (i) A company must not be barred from raising funds from the Indian capital market nor restrained from accessing the securities market by SEBI. (ii) The applicant company must be a listed company or be in the process of getting listed on any Indian stock exchange.

Contd..
Subscribers Overseas Corporate Bodies (OCBs) and other entities, which are not eligible to invest in India through portfolio route i.e. directly on the stock exchanges in India and entities which are prohibited to buy, sell or deal in securities by SEBI are prohibited from subscribing to GDR issues.

Benefits To An Issuing Company

Access to capital markets outside the home market. Enhancement of company visibility. Increase potential liquidity by enlarging the market for the companys shares. It helps the issuing company to extend its research base to foreign countries.

Benefits to an Investor
They facilitate diversification into foreign securities. Eliminate custody charges. Can be easily compared to securities of similar companies. Permit prompt dividend payments and corporate action notifications. GDRs offer most of the same corporate rights, especially voting rights, to the holders of GDRs.

Conclusion

Risks in foreign investments: Changes in currency exchange rates Dramatic changes in market value Political, economic and social events Lack of liquidity Less information Reliance on foreign legal remedies Different market operations

THANK YOU!!!!!