What is DR?

DR means depository receipt of anything.

TYPES OF DR AVAILABLE IN MARKET

ADR

GDR

EDR / SDR

IDR

DRs - what are they and how do they work?

Company - comply policies of stock exchanges Investing directly - expensive, risky, problematic Investing indirectly - DRs Receipt - predefined number of shares Listed on stock exchanges ADR - Infosys GDR - RIL IDR

Mechanism for ADR, GDR and IDR

ADR Programs formed in1927
Sponsered / Unsponsored shares Level I Level II (listed) Level III (offering) Restricted programs - 144-A and Regulation S

Comparison Level I & II

360 Perspective of ADR/GDR/IDR

Investor Perspective Company Perspective Economy Perspective

Investor Perspective
Global portfolio Benefits of higher risk; higher return equities Quoted and traded in U.S. Dollars Settlement of trade as per US system (T+3) Easy access to markets Transparency Lot of research on Co available in market Tax efficient Prompt dividend payments

Company Perspective
Raise capital from international market. Enlarged investor base. Greater exposure & Share s liquidity. Boosting the company's prestige. International shareholder base. Stock-swap acquisition. Costs of Cross Listing. Reduce Volatility and cornering of share

Company Perspective
Arbitrage opportunities
Repatriate funds Buy DR

Deposit proceeds in Indian bank account

Sell local stock in India

Deliver shares to stock exchange in India

Convert shares from DR to local

Economy s Perspective
Coupling of global economies Risks
Political Risk Exchange Rate Risk Inflationary Risk

Impact on Company s Valuation Forex exposure Policy Part i. Capital Import Neutrality ii. Capital Export Neutrality

Regulations: Issue of ADRs/GDRs by Indian Companies

Issue ADRs/GDRs if eligible in terms of the Scheme for Issue of FCCB and OS (Through DR) Scheme, 1993 and guidelines issued by MoF, GoI Co. should not be ineligible to issue shares to non-resident persons in terms of the Foreign Exchange Management Act (FEMA) Foreign investment - GDRs, ADRs - treated as FDI No restriction on the number of GDRs/ADRs/FCCBs floated by a co. or a group of cos. in a financial year No end-use restrictions on GDR/ADR issue proceeds on investment in real estate and stock markets except ban

Two-way Fungibility Scheme of ADR/GDR/IDR

Registered broker in India can purchase shares of Indian co. on behalf of a person resident outside India to convert the shares so purchased into ADRs/GDRs Purchase and re-conversion of shares which is equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market Benefits of Fungibility Improvement in liquidity and Elimination of arbitrage

ADRs & GDRs

Procedure for making IDR Issue

Cannot raise funds in India by issuing IDR without permission from the SEBI Application seeking permission made to the SEBI at least 90 days prior to the opening date of the issue with a non-refundable fee of US $10,000 Issuing co. shall obtain necessary approvals/exemption from the appropriate authorities from the country of its incorporation under the relevant laws relating to issue of capital Issuing co. shall appoint an overseas custodian bank, a domestic depository and a merchant banker for the purpose of issue of IDRs

CASE STUDY STAN CHART-IDR

Stan Chart opened its offering to Indian investor on 25 May 10 with a price band of Rs 100/- to 115/-. Standard Chartered fixed its issue price for Indian Depository Receipts at Rs 104 per unit. Every 10 IDRs represents one share of the bank. The IDRs opened at the Bombay Stock Exchange and National Stock Exchange on June 11

CASE STUDY STAN CHART-IDR

Standard Chartered PLC s Indian Depository Receipt, listed at Rs 106, exceeded expectations by Rs 2 or 1.92 per cent on the National Stock Exchange. FUNGIBILITY ISSUES The SEBI regulations and the RBI circular state that automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying shares would be permitted only after the expiry of one year period from the date of issue of IDRs and subsequent to obtaining RBI approval on a case-by-case basis

CASE STUDY STAN CHART-IDR

Two way FUNGIBILITY. One way FUNGIBILITY. SEBI VIEW POINT. IDRs shall be deemed to be infrequently traded if the annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than five percent of the listed IDRs, said SEBI. RIGHT ISSUE BY STAN CHART-IDR.

Who can Invest in IDRs??? Indian Companies Qualified Institutional Buyers NRI s and FII s with permission of RBI The Issue The minimum issue size is Rs. 50 crores 90% of the issue must be subscribed Automatic fungibility is not permitted