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ADR GDR

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American Depository Recipts and RBI regulations

American Depository Recipts and RBI regulations

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  • 1. Presented By – Group 5Aabhas Rastogi -11DCP053Anurag Bhargava -11DCP068Mayank Sahajwani -
  • 2. • RBI DEFINITION• PROCEDURE OF ISSUING ADR/GDR• REGULATIONS BY RBI• TWO WAY FUNGIBILITY• EXAMPLE AND CRITICAL ANALYSIS
  • 3. • Depository Receipts (DRs) are negotiable securities issued outside India by a Depository bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. Reserve Bank of India
  • 4. • DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc.• DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In the Indian context, DRs are treated as FDI. Reserve Bank of India
  • 5. • A sponsored DR is when the Indian company whose shares are held by the depository, has a direct involvement in the issuance of receipts.• Investors in the sponsored DR’s have the same rights as the direct owners of the common shares.• In the US, sponsored DRs must be registered(meet the reporting requirements) with the U.S. Securities and Exchange Commission(SEC).
  • 6. • In an unsponsored DR, the underlying Indian company has no involvement with the issuance of the receipts.• Instead, the depository bank purchases the Indian company’s shares in its domestic market and then issues the receipts through the brokerage firms in the depositors’ local market.• Hence, in this case the depository bank, not the investors in the DR, retains the voting rights.
  • 7. Provides Notification Deposit of Local Issu Local Local Shares e Depositor Shares DepositoBroker/ y Settling ry Bank DR MarketCompan y Custodia n Buy Buy/Sell Shares DRs FromLocal InvestorMarket
  • 8. • Indian companies can raise foreign currency resources abroad through the issue of ADRs/ GDRs, in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India.
  • 9. • A company can issue ADRs / GDRs, if it is eligible to issue shares to persons resident outside India under the FDI Scheme.• Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs
  • 10. • After the issue of ADRs/GDRs, the company has to file a return in Form DR as indicated in the RBI Notification No. FEMA.20/ 2000-RB dated May 3, 2000, as amended from time to time. The company is also required to file a quarterly return in Form DR- Quarterly as indicated in the RBI Notification ibid.
  • 11. • There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.• Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies.
  • 12. • The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.
  • 13. • Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/ GDRs.
  • 14. • The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002.• The Scheme provides for purchase and re- conversion of only as many shares into ADRs/ GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/ GDRs which have been actually sold in the market.
  • 15. • In case of ADRs/ GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/ GDRs.• The scheme is operationalized through the Custodians of securities and stock brokers under SEBI.
  • 16. • The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the Form enclosed in Annex -10, within 30 days from the date of closing of the issue.• The company should also furnish a quarterly return in the Form enclosed in Annex - 11, to the Reserve Bank within 15 days of the close of the calendar quarter.• The quarterly return has to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to India or utilized abroad as per the Reserve Bank guidelines.
  • 17. • It is an easy and cost effective way to buy shares of a foreign company• Reduces administrative costs and avoids foreign taxes on every transaction• Helps companies which are listed to tap the American equity markets• Any foreigner can purchase these securities• The purchaser has a theoretical right to exchange shares ( non- voting right shares for voting rights)
  • 18. • Listed in NASDAQ Stock Exchange in 1999.• The Infosys stock started at $ 37 , the first day of trading.• Two ADRs were equivalent to one Indian share, the price works out to Rs 2886 whereas the Infosys scrip was quoted at Rs 3201 on the Indian stock exchanges.• The initial US public offering of 1.8 million American Depository shares represents 9,00,000 equity shares, each share being equal to two ADR.• INFY ADRs have voting rights and are also eligible for cash dividends.
  • 19. • Two ADRs equivalent to 1 Share = Rs 2886• Share price quoted in India = Rs 3201• BUY ADR  Cancel ADR  Convert to shares  Sell in Local Market• Profit = 3201 - 2886 = Rs 315 (assuming no cancelation charges)
  • 20. SYMBO ADR ISSUE L INDUSTRY EXCH• DR. REDDYS LABORATORIES LTD. RDY Pharmaceutical NYSE• HDFC BANK LTD. HDB Banks NYSE• ICICI BANK LTD. IBN Banks NYSE• INFOSYS TECHNOLOGIES LIMITED INFY Technology NASDAQ Services• MAHANAGAR TELEPHONE NIGAM MTE Fixed Line Comm. NYSE LIMITED• REDIFF.COM INDIA LTD REDF Technology NASDAQ Services• SATYAM COMPUTER SERVICES SAY Technology NYSE LIMITED Services• SIFY LTD. SIFY Technology NASDAQ Services• VIDESH SANCHAR NIGAM LIMITED VSL Fixed Line Comm. NYSE• WIPRO LTD. WIT Technology NYSE