ADRs & GDRs

PRESENTED BY:
Anupama P. S
185SM002
T. Vasudha
185SM022
TABLE OF CONTENTS
• DEPOSITORY RECEIPTS
• PROCESS TO ISSUE DR
• AMERICAN DEPOSITORY RECEIPTS (ADRs)
• ADVANTAGES & DISADVANTAGES OF ADR
• GLOBAL DEPOSITORY RECEIPTS (GDRs)
• ADVANTAGES & DISADVANTAGES OF GDR
• DIFFERENCE BETWEEN ADR & GDR
• EXAMPLES OF ADR & GDR
• INDIAN DEPOSITORY RECEIPTS (IDRs)
• REFERENCES
 Depository receipts

• Depository Receipt is a negotiable certificate issued

by a bank representing shares in a foreign company
traded on a local stock exchange.
• The depositary receipt gives investors the
opportunity to hold shares in the equity of foreign
countries and gives them an alternative to trading on
an international market.
 Process to issue DR
Overseas fund

Deposits shares Invest

Acknowledgement
Money

Acknowledgement OVERSEAS
DOMESTIC of share deposits DEPOSITORY
CUSTODIAN BANK
 American Depository Receipts
(ADRs)
• ADR is a dollar-denominated negotiable certificate.
• It represents a non-US company’s publicly traded equity.
• It was devised in the late 1920s to help Americans invest in
overseas securities and to assist non-US companies wishing to
have their stock traded in the American Markets.
• ADR were introduced as a result of the complexities involved
in buying shares in foreign countries and the difficulties
associated with trading at different prices and currency values.
 Process to issue ADR
American
Overseas fund investor

Invest
Deposits shares
Money Acknowledgement
In $

Acknowledgement OVERSEAS
DOMESTIC of share deposits DEPOSITORY
CUSTODIAN BANK

SPONSORED ADR
Issued with cooperation of the
company whose stock will underlie
the ADR
Comply with regulatory
reporting.
Listing on international Stock
Exchanges allowed.
Types of ADR
UNSPONSORED ADR
Issued by – broker/dealer or
depository bank without the
involvement of company whose
stock underlies the ADR
No regulatory reporting
Trade on OTC market
 Levels of ADRs
• Level 1- Level 1 depositary receipts are the lowest level of sponsored
ADRs that can be issued.
• When a company issues sponsored ADRs, it has one designated depositary
who also acts as its transfer agent.
• Level 1 shares can only be traded on the OTC market and the company has
minimal reporting requirements with the U.S. Securities and Exchange
Commission [SEC].
• Level 2- Level 2 depositary receipt programs are more complicated for a
foreign company. When a foreign company wants to set up a Level 2
program, it must file a registration statement with the U.S. SEC and is
under SEC regulation
 Continues..
• The advantage that the company has by upgrading their program to Level
2 is that the shares can be listed on a U.S. stock exchange. These
exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the
American Stock Exchange (AMEX).
• Level 3- A Level 3 American Depositary Receipt program is the highest
level a foreign company can sponsor. Because of this distinction, the
company is required to adhere to stricter rules that are similar to those
followed by U.S. companies.
• They can be used to establish a substantial trading presence in the U.S.
financial markets and raise capital for the foreign issuer. They are subject
to full reporting with the SEC.
 Advantages
• The American investor can invest in foreign companies
which can fetch him higher returns.
• The benefit of currency fluctuation can be availed.
• It is an easier way to invest in foreign companies as there
are no restrictions to invest in ADR.
• The pricing of shares of foreign companies in ADR is
generally cheaper. Hence it provides additional benefit to
investors.
 Disadvantages
• Risk associated with foreign exchange fluctuation.
• The investment in companies opting for ADR often
becomes illiquid as investor needs to hold the shares for
long term to generate good returns.
• The charges for entire process of ADR are mostly
transferred on investors by the foreign companies.
• Any violation of compliance can lead to strict action by
Securities Exchange Commission.
 Global Depository Receipts
(GDRs)
• GDR is a type of Depository Receipt which is listed on an
exchange except for United States and helps the issuer to
raise funds simultaneously in different markets i.e. it
allows the foreign firms to trade on the exchange outside
its home country.
• The shares are held by a foreign branch of an
international bank.
• The shares trade as domestic shares, but are offered for
sale globally through the various bank branches.
 GDR Example
• A company based in USA, willing to get its stock listed on
German stock exchange can do so with the help of GDR.
• The US based company shall enter into an agreement
with the German depository bank, who shall issue shares
to residents based in Germany after getting instructions
from the domestic custodian of the company.
• The shares are issued after compliance of law in both the
countries.
 GDR Mechanism
• The domestic company enters into an agreement with the
overseas depository bank for the purpose of issue of GDR.
• The overseas depository bank then enters into a custodian
agreement with the domestic custodian of such company.
• The domestic custodian holds the equity shares of the company.
• On the instruction of domestic custodian, the overseas
depository bank issues shares to foreign investors.
• The whole process is carried out under strict guidelines.
• GDRs are usually denominated in U.S. dollars
 Advantages
• Provides access to foreign capital markets.
• Helps the company in getting international attention and coverage.
• GDR are liquid in nature as they are based on demand and supply
which can be regulated.
• The valuation of shares in the domestic market increase, on listing
in the international market.
• The non-residents can invest in shares of the foreign company.
• GDR can be freely transferred.
• GDR saves the taxes of an investor.
 Disadvantages
• Violating any regulation can lead to serious
consequences against the company.
• Dividends are paid in domestic country’s currency which
is subject to volatility in the forex market.
• It is mostly beneficial to High Net-Worth Individual (HNI)
investors due to their capacity to invest high amount in
GDR.
• GDR is one of the expensive sources of finance.
 DIFFERNCE BETWEEN
ADR & GDR
BASIS FOR COMPARISON ADR GDR
Relevance Foreign companies can trade in Foreign companies can trade in
US stock market. any country's stock market
other than the US stock market.
Issued in United States domestic capital European capital market.
market.
Listed in American Stock Exchange such Non-US Stock Exchange such as
as NYSE or NASDAQ London Stock Exchange or
Luxemberg Stock Exchange.

Negotiation In America only. All over the world.

Disclosure Requirement Onerous Less onerous
Market Retail investor market Institutional market.
 WHICH INDIAN COMPANIES HAVE
ADR & GDR
COMPANY ADR GDR
Bajaj Auto No YES
Dr Reddy’s YES YES
HDFC Bank YES YES
ICICI bank YES YES
ITC NO YES
L&T NO YES
MTNL YES YES
HINDALCO NO YES
INFOSYS TECHNOLOGIES YES YES
TATA MOTORS YES NO
 Indian Depository Receipts
(IDRs)
• IDR is a type of Depository Receipt denominated in
Indian Rupees created by a Domestic Depository
(custodian of securities registered with the Securities
and Exchange Board of India) against the underlying
equity of issuing company to enable foreign
companies to raise funds from the Indian securities
Markets.
 Reference
• https://www.investopedia.com/terms/a/adr.asp
• https://www.investopedia.com/terms/g/gdr.asp
• https://www.bankingschool.co.in/foreign-
exchange/what-are-depository-receipts-adr-gdr-and-idr/
• https://keydifferences.com/difference-between-adr-and-
gdr.html
• https://www.quora.com/What-is-GDR-ADR-and-IDR
• https://www.slideshare.net/Yashal24/adr-and-gdr