ADR &GDR

By:
• Mayank Anand -09
• Megha Sharma - 12
• Anvita Poonam - 18
• Angira Mitra - 24
• Shah Atif Mohamad -29
 NRI can’t Invest Directly
• If a foreign born individual investor whose
parents or grand parents were never part of
India, Indian Capital Markets are closed for you
for direct investment.
• Indian rupee is still controlled by Indian
government for Capital account transactions.
• This means, resident Indian nationals are not
allowed to invest in overseas stocks and likewise,
foreign nationals can not invest in Indian markets.
 Meaning
Depository Receipt
ADR - American Depositary Receipt

 An  ADR represents ownership in the shares of a non-U.S.

company and trades in U.S. financial markets.

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 About ADR
• ADRs first introduced in 1927
• The stock of many non US companies, traded on
US exchanges through the use of ADRs.
• ADRs enable US investors to buy shares in foreign
companies without undertaking cross-border
transactions.
• The shares of the non-US corporation trade on a
non-US exchange, while the ADRs trade on a US
exchange.
Types of ADR
 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 and  Conversion
reporting requirements. becomes costly.
 Sponsored ADRs
 Initiated by Issuer.
 Established jointly by an Issuer and Depository.
 Agreement between 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
Minimal SEC Full SEC SEC reporting
registration registration & is more
&reporting reporting detailed than
requirements. requirements. Level II.
Cannot be listed on Listed on
National exchange of Listed on National National
US. exchange of US. exchange of
US.
Capital Raising is not Capital Raising is Capital can be
permitted. not permitted. raised through
Public offering.
 Private Placement (Rule 144A)
 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.
 Benefits of ADR

• TO COMPANIES:
• Broadening and diversifying a company US’s
• investor base.
• Enhancing company visibility, status and
profile in the US and internationally among
investors.
• Offers a new source of raising equity capital,
often at highly competitive rates.
 Benefits of ADR contd…….

• TO INVESTORS:
• Convenient to purchase and hold a non-US
issuer securities.
• Opportunities to invest and earn in US Dollars.
• Diversifying portfolio.
• Invest in high growth economies.
 Disadvantages of ADR

• ADR cannot be exchanged with its home

market security.
 Participants in ADR Market
• Brokers
• Accountants
• Investment Banker
• Lawyers
• Investment Relations Firm
• Custodian
• Depository
• Issuer
Specimen Of ADR …
 Meaning
GDR - Global Depositary Receipt

 GDR is a certificate issued by a depository bank,

which purchases shares of foreign companies.

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 About GDR
• In may 1992 by reliance industries US $ 150 mn.

• After that market pulled down due to several reasons.

• Political instability, falling markets, liquidity crunch

etc.

• Biggest Asian GDR issued by SBI in 1997 for US $ 350

mn.
 Objective of GDR
•Enable investors in diversifying their funds in
international securities.

• Factors effecting GDRs prices:

• company track record
• analysts recommendations
• market conditions
• international status of the company
Advantages of GDRs
• Shareholder wealth maximization.
• allow investors to invest in foreign companies
without worrying about foreign trading
practices, laws.

• Disadvantage of GDRs:
• GDR have foreign exchange risk i.e. currency
of issuer is different from currency of GDR.
 Need
ISSUER INVESTOR
Attractive pricing Diversification

No foreign exchange Negotiable instrument free

fluctuations from investment restrictions
Granting ESOPs Investment opportunities &
Less obstacles

Less monitoring Trading information and

research
Enhances image of company Prompt dividend payment in
globally. dollars
 Comparison
ADR GDR
 Centre – NYSE  Centre – LSE
 Disclosure – Requires  Disclosure – Only Detailed
Information Required.
Comprehensive Disclosure.  GAAP – Satisfied with Statement of
 GAAP – Company accounts difference between the A/c Standards.
must be reconciled to US  Cost – Comparatively lower.
GAAP.  Retail – Only QIBs allowed in US.
 Cost – Comparatively higher.  Liability – Comparatively less than
ADR.
 Retail – US retail market can  Listing – London Stock Exchange
be accessed.
• Luxembourg Stock Exchange
 Liability – Legal liability is • DIFX
more. • Singapore Exchange
 Listing – • Hong Kong Exchange
NYSE,AMEX,NASDAQ
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 Functions

Depository Bank
Issues Depository
Receipts to
Possession of
investors
shares with the
Custodian Bank

Issuing Company
Mechanism to issue ADR/GDR
5
Company issues Ordinary Shares

Kept with Domestic Custodian

Transferred to the Overseas Depository Bank

ADR’s /GDR’s are issued by ODB

Receipts given to the foreign investors

 Process for ADR/GDR…
DOMESTIC CUSTODIAN Releases Equity Shares
BANK
INDIAN COMPANY
Has a custody of Indian
company equity shares
Requests the bank Gives Instructions to
to release of equity Issue ADRs/ GDRs
Shares
OVERSEAS
DEPOSITORY BANK

Requests for buying Issue

ADR/GDR ADRs/GDRs

INVESTORS
 India-ADR and GDR

• ADRs and GDRs are an excellent means of investment for

NRIs and foreign nationals wanting to invest in India.

• By buying these, they can invest directly in Indian companies

without going through the hassle of understanding the rules
and working of the Indian financial market –since ADRs and
GDRs are traded like any other stock.
• NRIs and foreigners can buy these using their regular equity
trading accounts.
Indian Companies using ADR/GDR
Some of them are:
•Bajaj Auto
•Dr. Reddy’s
•HDFC Bank.
•Hindalco.
•ICICI Bank
•Infosys
•ITC
•L & T
•Wipro