ADR, GDR & IDR

Subject: Derivatives

Presented By:
Sanket Advilkar (01)
Amey Bhagat (05)
Amit Mittal (19)
Jerin John (52)
Rupali Indap (108)
 Depository Receipts
 It is a type of negotiable (transferable) financial security

 It is usually in the form of equity, which is issued by a foreign

publicly listed company

 It is a Physical Certificate

 It allows investors to hold shares in equity of other countries

 Major Players in DR

Corporate Issuer

Register & Transfer Agent

DR
Overseas Custodian Holder

Domestic Depository
Process of Issuing DR
Company Issues Ordinary Shares

Kept with Domestic Custodian

Transferred to Overseas Depository Bank

DRs are issued by ODB

Receipts Given to the Foreign Investors

 AMERICAN
DEPOSITORY
RECEIPT
(ADR)
 What is ADR ?
 An ADR represents ownership in the shares of a non-U.S. company
and trades in U.S. financial markets

 ADR’s are quoted and traded in U.S. Dollars in the US securities

market. Also, the dividends are paid to investor in US dollars

 ADRs were first introduced in year 1927

 ADRs are traded on NYSE, NASDAQ & AMEX in USA

 Types of ADR

Level I
Unsponsored
Types of
Level II
ADRs
Sponsored
Level III

Private
Placement
 Unsponsored ADRs
 Created in response of investors, brokers - dealers and
depository
 Exempted from reporting requirements of the SEC
 Not Listed on any exchange

Advantages: Disadvantages:
 Inexpensive  No control over the
 Expands investors base activity
 Minimal SEC compliance  Conversion becomes
and reporting requirements costly
 Sponsored ADRs
 Initiated by Issuer

 Established jointly by an Issuer and Depository

 Depository provides shareholders communication and

other information to ADR holders

 Through Depository ADR holders can exercise voting

rights
 Level I Level II Level III

Least Expensive More Expensive Most Expensive

SEC reporting is
Minimal SEC registration Full SEC registration &
more detailed than
& reporting requirements. reporting requirements.
Level II.

Cannot be listed on Listed on National Listed on National

National exchange of US. exchange of US. exchange of US.

Capital can be raised

Capital Raising is not Capital Raising is not
through Public
permitted. permitted.
offering.
 Private Placements
 Capital can be raised by placing Depositary Receipts
with large institutional investors

 Do not have to conform full SEC reporting and

registration requirements

 Cheaper means of raising equity capital

 Can only be sold to QIBs

Indian ADR
 GLOBAL
DEPOSITORY
RECEIPTS
(GDR)
 What is GDR ?
 GDR is a certificate issued by a depository bank, which purchases
shares of foreign companies

 GDR can be traded globally in exchange or over the counter market

& it is a global funding vehicle for raising capital

 Normally 1 GDR = 10 Shares

 GDR does not provide voting rights

 Biggest Asian GDR was issued by SBI in 1997 for US $ 350 million
Process of GDR
 GDR Listing
 London Stock Exchange
 Luxembourg Stock Exchange
 Dubai International Financial Exchange (DIFX)
 Singapore Exchange
 Hong Kong Exchange
 GDR: Advantages & Disadvantages
 Allow investors to invest in foreign companies without worrying about
foreign trading practices & laws

 Payments of dividends are in the GDR currency

 GDRs are liquid because they are based on demand and supply which
is regulated by creating or cancelling shares

 Provides the Issuer more larger and diverse shareholder base and the
ability to raise more capital in international markets

 However, they have foreign exchange risk i.e. currency of issuer is

different from currency of GDR
Indian Companies Issuing GDR
 Bajaj Auto L&T

 Dr. Reddys  MTNL

 HDFC Bank  Reliance Industries

 Hindalco  State Bank of India

 ICICI Bank  VSNL

 Infosys Technologies  Wirpo

 ITC  TATA Motors

 Comparison
ADR
Centre – NYSE
GAAP – Company accounts
must be reconciled to US GAAP
Cost – Comparatively higher
Retail – US retail market can be
accessed
Liability – Legal liability is more
GDR
Centre – LSE
GAAP – Satisfied with Statement
of difference between the A/c
Standards
Cost – Comparatively lower
Retail – Only QIBs allowed in US
Liability – Comparatively less
than ADR
 INDIAN
DEPOSITORY
RECEIPT
(IDR)
 What is IDR ?
 IDRs are depository receipts denominated in Indian Rupees
issued by a Domestic Depository in India

 The US $ 200,000 limit is not applicable for an investment in

IDRs

 An IDR holder will be entitled to rights on an equitable basis

vis-à-vis the rights of shareholders of the issuer company in
its home country.

 Fungibility: Reverse fungibility is not allowed

 Process of IDR

Shares

Issuer of Domestic Holds

Issuer Custodian
IDRs to Depository
(Outside India) (Outside India)
Investors (in India) Shares for
in India Domestic
Depository

IDR Holders – FIIs, IDRs listed on

NRIs, FIs, Retail, Non- NSE / BSE
Institutional Investors
 Who Can Invest?
 Retail Individual Investors (incl NRIs)

 Non-Institutional Investors (“NIIs”) (incl NRIs)

 Qualified Institutional Buyers (“QIBs”)

Retail
Individual
 Scheduled commercial banks Investors
30%
 Mutual Funds

 Foreign Institutional Investors

 Indian Institutional investors except Insurance

companies, venture capital funds
 India’s First Ever IDR: Stan Chart
 Raised Rs. 2490 crore ($530) million through issue of 24
crore IDRs

 Initial issue price was Rs. 104 but it was listed at Rs 106,
exceeded expectations by Rs 2 on the NSE

 It was subscribed 1.38 times

 Every 10 IDR = 1 share of SC