ADR and GDR

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ADR and GDR

  1. 1. ADR and GDR By Prof. Augustin Amaldas
  2. 2. <ul><li>Global Depository Receipts(GDR) / American Deposit Receipts (ADR) / Foreign Currency Convertible Bonds (FCCB) </li></ul>
  3. 3. <ul><li>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 and the depositories in turn issue the depository receipts, which entitle the holder of the receipts to get the underlying shares on demand. </li></ul>
  4. 4. <ul><li>The depository receipts themselves, which represent an interest in the underlying securities, are in turn securities that are capable of being listed on international stock exchanges </li></ul><ul><li>They can be converted into ordinary shares of issuing company </li></ul>
  5. 5. <ul><li>Issuing </li></ul><ul><li>company </li></ul><ul><li>Track record of 3 years </li></ul>Domestic Custodian bank Investment Banker (overseas depository Bank) issuer Of ADR/ GDR 1.Public 2.Private 3.Number of ADR/GDR 4.Issue price 5.Rate of Interest 6.conversion Price 7.coupon Rate Pricing of conversion option
  6. 6. Conditions <ul><li>FCCB- in foreign currency(Foreign currency bonds) </li></ul><ul><li>Ordinary shares of issuing company should be in Indian currency </li></ul><ul><li>The issued ordinary shares or bonds should be delivered to DCB(Domestic custodian bank) </li></ul><ul><li>DCB instructs ODB(Overseas depository Bank) to issue GDR/ADR certificates to non- resident investors against the shares in DCB </li></ul><ul><li>GDR may be listed on any international stock exchange for trading outside India. </li></ul>
  7. 7. Conditions to be fulfilled by issuing domestic company <ul><li>Prior permission from Department of Economic affairs, Ministry of finance, GOI </li></ul>
  8. 8. <ul><li>Indian companies are allowed to raise equity capital in the international market through the issue of GDR/ADRs/FCCBs. These are not subject to any ceilings on investment. An applicant company seeking Government's approval in this regard should have a consistent track record for good performance (financial or otherwise) for a minimum period of 3 years </li></ul>
  9. 9. Issue of GDRs/ADRs by IT software /services companies <ul><li>Eligible to offer to non residents/resident permanent employees including overseas working directors against the issue of ordinary shares. </li></ul><ul><li>Atleast 80% of its turnover is from software related activities. </li></ul><ul><li>Annual export earning of 100 crore from such company. </li></ul><ul><li>The shares issued against ADR/ GDR ahould be treated as direct foreign investment in the issuing company. </li></ul><ul><li>It can not exceed more than 51% of the subscribed capital. </li></ul>
  10. 10. Advantages of ADR/GDR <ul><li>1. Can be listed on any of the overseas stock exchanges/OTC/Book entry transfer system </li></ul><ul><li>2.Freely transferable by non resident </li></ul><ul><li>3.They can be redeemed by ODB </li></ul><ul><li>4.The ODB should request DCB to get the corresponding underlying shares released in favour of non resident investors.(Share holder of issuing company) </li></ul>
  11. 11. Capital gain <ul><li>Sale price of shares- conversion price </li></ul><ul><li>Conversion price= price of shares at Bombay Stock Exchange or NSE on the date of conversion of ADR/GDR into shares. </li></ul><ul><li>From the date of conversion into shares till the date of sale is more than 12 months-long term capital asset-10% tax </li></ul><ul><li>Less than 12 months-short term –normal rate of tax. </li></ul><ul><li>All trading transaction outside India by non-resident-not taxable in India </li></ul>
  12. 12. After redemption of ADR/GDR? <ul><li>The shares held by nonresident investor </li></ul><ul><li>The dividend received on such shares is taxable at 10% </li></ul>
  13. 13. Double taxation agreement <ul><li>As long as the underlying shares are with custodian bank and before they are sold by nonresident to resident-concesstional treatments applicable </li></ul><ul><li>It is also applicable for the dividend and received or capital gain on transfer of underlying shares. </li></ul>
  14. 14. Gift tax and wealth tax <ul><li>As long as ADR/GDR or under lying shares with ODB exempted from WEALTH TAX . </li></ul><ul><li>If they are gifted to nonresident-not treated as income of the recipient. </li></ul><ul><li>If gifted to resident- treated as income of the recipient. </li></ul>
  15. 15. Taxation <ul><li>1. Dividend- Taxed AT THE RATE OF 10% </li></ul><ul><li>The issuing company should transfer the net dividend (after TDS at 10%) to ODB </li></ul><ul><li>ODB distribute them to Non-residents proportionately to their holdings. </li></ul><ul><li>Credit also be given </li></ul>

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