TABLE OF CONTENTS• DEPOSITORY RECEIPTS• AMERICAN DEPOSITORY RECEIPTS (ADR)• PROCESS TO ISSUE ADR/GDR• ADVANTAGES OF ADR• TYPES OF ADR• LEVELS OF ADR• GLOBAL DEPOSITORY RECEIPTS (GDR)• TYPES OF GDR• DIFFERENCE BETWEEN ADR & GDR• EXAMPLES OF ADR & GDR
Depository receipts• Depository receipts are instruments issued by international depositories (ODB), and they represent an interest in the underlying shares held by them in the issuer company (Indian Company). The shares are usually held by a domestic custodian on behalf of the depositories in turn issue the depository receipts, which entitle the holder of the receipts to get the underlying shares on demand.
• DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc.• DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In Indian context, DRs are treated as FDI
INTERNATIONAL CAPITAL MARKETINTERNATIONAL BOND MARKET INTERNATIONAL EQUITY MARKET EURO FOREIGN GDR ADR BOND BOND
AMERICAN DEPOSITORY RECEIPTS• 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 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/gdr Domestic Issuing Share CustodianCompany certificate bank (RIL) (SBI) confirmation Foreign GDR/ADR Issue of DRDepository Holders (Morgan (Bank Of Stanley) America) Payment Clearing Foreign Stock Agency Dividend Exchange(Euro Clear) (NYSE)
ADVANTAGES OF ADR/GDR• Can be listed on any of the overseas stock exchanges /OTC/Book entry transfer system.• Freely transferable by non-resident.• They can be redeemed by ODB.• The ODB should request DCB to get the corresponding underlying shares released in favor of non resident of investors. (Shareholders of issuing companies).
Types of adrSPONSORED ADR UNSPONSORED ADRIssued with cooperation of Issued by – broker/dealerthe company whose stock or depository bank withoutwill underlie the ADR the involvement of company whose stock underlies the ADRComply with regulatory No regulatory reportingreporting.Listing on international Trade on OTC marketStock Exchanges allowed.
Levels of adr• 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.
• 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.• Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital
GLOBAL DEPOSITORY RECEIPTS• A bank certificate issued in more than one country for shares in a foreign company. 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.• A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros.• The voting rights of the shares are exercised by the Depository as per the understanding between the issuing company and the GDR holders.
Types of gdr• Rule 144A GDRs• Rule 144A GDRs are privately placed depositary receipts which are issued and traded in accordance with Rule 144A. This rule was introduced by the SEC in April 1990 in part to stimulate capital raising in the US by non-US issuers.• Non-US companies now have ready access to the US equity private placement market and may thus raise capital through the issue of Rule 144A GDRs without complying with the stringent SEC registration and reporting requirements.
• Regulation S• With the global integration of the major securities markets, it is now commonplace to have fungible securities listed and cleared in more than one market.• Just as ADRs allow non-US issuers to access the important US market, GDRs allow issuers to tap the European markets.
DIFFERNCE BETWEEN ADR & GDRADR GDRAmerican depository receipt Global depository receipt (GDR) is(ADR) is compulsory for non –us compulsory for foreign companycompanies to trade in stock to access in any other country’smarket of USA. share market for dealing in stock.ADRs can get from level 1 to level GDRs are already equal to highIII. preference receipt of level II and level III.ADRs up to level –I need to GDRs can only be issued underaccept only general condition of rule 144 A after accepting strictSEC of USA. rules of SEC of USA .ADR is only negotiable in USA . GDR is negotiable instrument all over the worldInvestors of USA can buy ADRs Investors of UK can buy GDRs fromfrom New york stock exchange London stock exchange and(NYSE) or NASDAQ luxemberg stock exchange and invest in Indian companies without any extra responsibilities .
WHICH INDIAN COMPANIES HAVE ADR & GDRCOMPANY ADR GDRBajaj Auto No YESDr Reddy’s YES YESHDFC Bank YES YESICICI bank YES YESITC NO YESL&T NO YESMTNL YES YESHINDALCO NO YESINFOSYS YES YESTECHNOLOGIESTATA MOTORS YES NO