ADR, GDR & IDR

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SUSHIL SHETTY SMITH JOSHI HARSHIT GOENKA VINITA HEMDEV DHWANI TANNA DHIRAJ DUBEY DEEPAK PATIL VISHAL THAKKAR NEHA SHAH MONALI SHAH

105 76 70 73 53 69 91 117 100 99

DR is a type of negotiable (transferable) financial security. How Does the DR Work. Benefits of Depositary Receipts. Three types.. (a) ADR (b) GDR (c) IDR

It is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the U.S. financial markets. Individual shares of the securities of the foreign company represented by an ADR are called American Depositary Shares

(ADS).

Indian Company Appoint an investment banker Local Broker of India Custodian Bank of India Depositary Bank in New York Delivers the ADRs to the broker

(i) Divestment by shareholders of their holdings of Indian companies, in the overseas markets would be allowed through the mechanism of Sponsored ADR/GDR issue in respect of:(a) Divestment by shareholders of their holdings of Indian companies listed in India; (b) Divestment by shareholders of their holdings of Indian companies not listed in India but which are listed overseas. (ii) The process of divestment would be initiated by such Indian companies whose shares are being offered for divestment in the overseas market by sponsoring under the provisions of these guidelines.

(iii) The sponsoring company, whose shareholders propose to divest existing shares in the overseas market through issue of ADRs/GDRs will give an option to all its shareholders indicating the number of shares to be divested and the mechanism how the price will be determined under the ADR/GDR norms. If the shares offered for divestment are more than the pre-specified number to be divested, shares would be accepted for divestment in proportion to existing holdings. (iv) The proposal for divestment of the existing shares in the ADR/GDR market would have to be approved by a special resolution of the company whose shares are being divested. (v) The proceeds of the ADR/GDR issue raised abroad shall be repatriated into India within a period of one month of the closure of the issue. (vi) Divestment of existing shares of Indian companies in the overseas markets for issue of ADRs/GDRs would be reckoned as FDI. Such proposals would require FIPB approval as also other approvals, if any, under the FDI policy.

(vii) Such divestment inducting foreign equity would also need to conform to the FDI sectoral policy and the prescribed sectoral cap as applicable. Accordingly the facility would not be available where the company whose shares are to be divested is engaged in an activity where FDI is not permitted. (viii) Each case would require the approval of FIPB for foreign equity induction through offer of existing shares under the ADR/GDR route. (ix) Other mandatory approvals such as those under the Companies Act, etc. as applicable would have to be obtained by the company prior to the ADR/GDR issue. (x) The issue related expenses(covering both fixed expenses like underwriting commissions, lead managers charges, legal expenses & reimbursable expenses) for public issue shall be subject to a ceiling of 4% in the case of GDRs and 7% in the case of ADRs and 2% in case of private placements of ADRs/GDRs. Issue expenses beyond the ceiling would need the approval of RBI.

(xi) The shares earmarked for the sponsored ADR/GDR issue may be kept in an escrow account created for this purpose and in any case, the retention of shares in such escrow account shall not exceed 3 months. (xii) If the issues of ADR/GDR are made in more than one tranche, each tranche would have to be treated as a separate transaction. (xiii) After completing the transactions, the companies would need to furnish full particulars thereof including amount raised through ADRs/GDRs, number of ADRs/GDRs issued and the underlying shares offered, percentage of foreign equity level in the Indian company on account of issue of ADRs/GDRs, details of issue parameters, details of repatriation, and other details to the Exchange Control Department of the Reserve Bank of India, Central Office, Mumbai within 30 days of completion of such transactions.

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The Noon U.S company whose ordinary shares underlie the ADRs is a partly to the agreement governing the arrangement (known as Deposit Agreement ) along with the depository bank & is able to exercise control regarding the terms & conditions of the ADRs program including How many ADRs are registered, what are the rights. Issued by the single depository bank & cannot be duplicated. Allows the issuer to know: Number of ADRs issued and outstanding Who is holding the ADR

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It is established by the bank without the participation or consent of the issuer, as he is not involved in the implementation or in the maintenance. Investor confusion Less favorable to the issuers & investors due to lack of control by issuers.

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Simplest method to access the U.S Capital Markets Traded in the OTC markets Issuing companies do not have to comply with the US Accounting Principles. Can be migrated to Level II and Level III ADRs Requires minimal SEC Registration

Level 2 ADRs
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Require full registration with the SEC. filing an F-6 registration statement, file SEC Form 20-F & other financial disclosure

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Can be listed on NASDAQ, the New York Stock Exchange Advantages

Level 3 ADR ` In the most high-profile form of sponsored ADR program, Level III, an issuer floats a public offering of ADRs in the United States and lists the ADRs on one of the U.S. exchanges or NASDAQ.
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Need To Comply With Sec Rules: Form F-6 for Registration Form F-20 for Financial Disclosure Form F-1 for Raising Capital for first time including Prospectus

Meaning Example Benefits

Global Depository Receipt (GDR) - certificate issued by international bank, which can be subject of worldwide circulation on capital markets. GDR's are emitted by banks, which purchase shares of foreign companies and deposit it on the accounts. Global Depository Receipt facilitates trade of shares, especially those from emerging markets. Prices of GDR's are often close to values of realted shares. Very similar to GDR's are ADR's. GDR's are also spelled as Global Depositary Receipt.

Divestment by shareholders of holding companies against the block of existing shares. Facilities would be available to all the categories of shareholders The proposal have to be approved by a special resolution of the company The proceeds of issue raised shall be repatriated into India within one month

Such divestment in the overseas market of ADR/GDR would be reckoned as FDI The issue related expenses subject to a ceiling of 4% in the case of GDRs and 7% in the case of ADRs the companies would need to furnish full particulars to the Exchange Control Department of the RBI

COMPANY NAME DR REDDYS ICICI INFOSYS RANBAXY LABS RELIANCE PETROLEUM WOCKHARDT

SHARE PER GDR 1.0 5.0 0.5 1.0 15.0 1.0

Size of GDR issue IN ($million) 48.00 235.00 70.38 100.00 100.00 75.00

Widened Investor Base Increased Liquidity Global Visibility Price parity Facilitates market entry

Ease of investment Simple to trade Global access Enable Comparison Access to institutional investor

An IDR is an instrument in the form of a Depository Receipt created by the Indian Depository in India against the underlying equity shares of the issuing company in order to enable foreign companies to raise funds from the Indian markets.

An issuing company can issue IDRs only if it satisfies the following condition : Its pre-issuing paid up capital and free reserves are at least US$50 million and it has a minimum average market capitalization ( during the last 3 years ) in its parent country of at least US$ 100 million; It has a continuous trading record or history on a stock exchange in its parent country for at least three immediately preceding years; It has a track record of distributable profits in term of section 205 of the companies Act, 1956, for atleast 3 out of immediately preceding 5 years;

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Issue cant be made unless permission is granted from SEBI Permission should be made 90 days prior to opening date of issue with non refundable fee of US 10,000 $ After permission granted fee of 0.5% of issue value minimum of Rs 10 lakhs upto 100 cr, if issue value exceeds Rs 100 crore additional value of issue - fee of 0.25% of issue value. Issuing company needs approvals , have to appoint overseas custodian bank , domestic depository and merchant banker. Permission from stock exchange , filling prospectus and letter of offer with ROC and SEBI

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Issue size. Procedure mentioned in the prospectus; Minimum application amount At least fifty per cent. of the IDR to qualified institutional buyers. The balance fifty per cent to non-institutional investors and retail individual investors including employees at the discretion of the issuer At least thirty per cent. of the IDRs being offered to retail individual investors Under subscription - spillover to other categories may be permitted.

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Not subject STT like shares Not subject to dividend distribution tax General rule regarding capital gain taxation shall apply No benefits for long term holders of IDR s are available Direct tax code may clarify the issue

BENIFITS TO SHAREHOLDER
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Except attending AGM and voting rights

shall not be automatically fungible into underlying equity shares of issuing company

Period of redemption one year period from the date of issue of the IDRs.

Launch of one and only IDR Stanchart s 3rd listing 1 IDR= 1/10TH of share Tax related to stanchart Dividends related to stanchart Fungibility of stanchart