Type of negotiable (transferable) financial security. Traded on a local stock exchange. Physical certificate allowing investors to hold shares in equity of other countries.
For the Company1. Raise capital from foreign markets.2. Increases the share liquidity. For the Investor1. Investors gain the benefits of diversification.2. Investors will be able to reap the benefits of foreign (emerging) markets.
The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges. Shares of many non-US companies trade on US stock exchanges. ADRs are denominated and pay dividends in US dollars and may be traded like regular shares of stock.
Sponsored ADR program BROK USINVE E/ EXCHSTOR DEAL ANG ER E
• Under the sponsored program there are 3 levels and they are ;• 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 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).
• 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
Unsponsored Programme:• Unsponsored shares trade on the over-the- counter (OTC) market• Unsponsored ADRs are often issued by more than one depositary bank
Restricted Programme Foreign companies that want their stock to be limited to being traded by only certain individuals may set up a restricted program ADR programs operating under one of these 2 rules make up approximately 30% of all issued ADRs
Privately placed (SEC Rule 144A) ADRs ADR program under SEC Rule 144A private placement restricted stock and may only be issued to or traded by Qualified Institutional Buyers (QIBs)
Offshore (SEC Regulation S) ADRs SEC Regulation S Shares are not, and will not be registered with any United States securities regulation authority The shares are registered and issued to offshore, non-US residents
Certificate issued by a depository bank, which purchases shares of foreign companies. Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange.
Co/- deposits Co/- deposits The bank then The bank thenlarge no of shares large no of shares Is receipts are Is receipts are issues receipts issues receipts located in located in sold to people of sold to people of underlying the underlying the country where it country where it that country that country shares (2-4) shares (2-4) wants to list. wants to list. Behaves exactly Behaves exactly like regular like regular This receipt is This receipt is stocks- price stocks- price then listed on then listed on fluctuation fluctuation local stock local stock according to according to exchanges. exchanges. demand & demand & supply supply
London Stock Exchange Luxembourg Stock Exchange Dubai International Financial Exchange (DIFX) Singapore Stock Exchange Hong Kong Stock Exchange
Company ADR GDRBajaj Auto No YesDr. Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL&T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
FDI means investment by non-resident entity/person resident outside India in the capital of an Indian company They are made by a company or entity based in one country, into a company or entity based in another country.
Companies invest in foreign countries: To gain control over the market To increase its sales To reduce its costs To acquire technological and managerial know-how To establish control of managerial decision making via investment in equity share capital
Purchase of existing assets in a foreign country. New investment in property, plant, equipment. Participation in a joint venture with a local partner. Transfer of many types of assets like human resources, systems, technical know-how in exchange for equity in foreign companies. Through trading in equity.
Domestic capital is generally inadequate for the purpose of economic growth FDI brings with it human and technological expertise Increases a firms global competitiveness Profitable both for the country receiving the investment and the investor
SUPPLY Factors: Production Costs Logistics Availability of Natural Resources Availability of Human Resources at low cost Access to key technology
DEMAND Factors: Customer Access Marketing Mobility Exploitation of Competitive Advantages POLITICAL Factors: Avoidance of Trade Barriers Economic Development Incentives
No need ofGovernment Approval Requires prior Approval of the Only regional RBI Governmentoffice has to beinformed Proposals either to FIPB or DIPPInvestment upto theprescribed sectoral limit Investment upto the prescribed sectoral limit
Prohibited Sectors Lottery Business Gambling and Betting including Casinos Chit Funds Manufacturing of Cigars, cigarettes, tobacco or tobacco substitutes Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport
Permitted SectorsSector % of FDI Cap Entry RoutePharmaceuticals 100% GovernmentNBFC 100% AutomaticInsurance 26% AutomaticBanking – Public Sector 20% GovernmentBanking – Private Sector 74% Automatic upto 49% Government beyond 49-74%E-Commerce Activities 100% AutomaticTelecom Services 74% Automatic upto 49% Government beyond 49-74%Construction Development 100% Automatic
Integration into global economy Economic growth Trade Technology diffusion and knowledge transfer Increased competition Human Resources Development Employment