The document discusses various types of depository receipts (DRs) such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). It explains that a DR allows investors to hold shares of foreign companies that trade on a local exchange. The document outlines the key parties involved in issuing DRs, including the issuer, depository, custodian bank and underwriters. It also describes the approval process for issuing DRs and the ongoing roles and responsibilities of each party.

1. ADR & GDR
Group – 5

2. DR - Depository Receipts
 Origin
 Issuance of a Depository Receipt
 Benefits to the issuer company and the
investors
 Types of Depository Receipts
ADR – American Depository Receipts
 What is ADR
 Structure/Types of ADR
 Ratio of ADR
 Pricing of ADR
 Process of issuing ADR
 Approval required for issuing depository
receipts
2
 Cancellations of ADR’s
 Fungibility
 Head Room
 Risks Associated with ADR
 Trading of ADR’s
 Arbitrage Opportunities
 GDR – Global Depository Receipts
 What is GDR
 Difference between ADR & GDR
 IDR- Indian Depository Receipts
 Standard Chartered case Study
 FCCB’s
 Difference between FCCB’s & GDR
 Case Study – Infosys

3. Companies around the world like to raise capital
abroad.
Objectives being:
Cross border acquisitions
Undertaking new projects abroad
Expansion and Modernization of Existing Projects
abroad
Funding JVs & Subsidiaries abroad
3

4. A depositary receipt (DR) is a type of negotiable
(transferable) financial security that is traded on a local
stock exchange but represents a security, in the form of
equity, that is issued by a foreign publicly listed
company.
4

5. In 1920’s in USA
The first ADR was introduced by J.P. Morgan in 1927 for
the British retailer Selfridges on the New York Curb
Exchange, the American Stock Exchange's precursor
Investor’s demand of diversifying their financial
resources internationally
Difficulty & Risk of investing in original foreign
securities by American investors & brokers
Tap International Equity of Foreign Firms through an
organized mechanism
ADR Created in 1927 by JP Morgan (Depository) in USA
for a British Retailer Selfridges & Co (Issuer)
5

6. A depository receipt trades on a local stock exchange,
but a custodian bank in the foreign country holds the
actual shares.
The DR, is a physical certificate, allows investors to hold
shares in equity of other countries.
One of the most common types of DRs is the American
depositary receipt
6

7. The DR is created when a foreign company wishes to
list its already publicly traded shares or debt securities
on a foreign stock exchange
Before it can be listed to a particular stock exchange,
the company in question will first have to meet certain
requirements put forth by the exchange.
Initial public offerings, can also issue a DR.
DRs can be traded publicly or over-the-counter
7

9. Issuer
Creates, broadens or diversifies
investor base
Enhances visibility and global
presence
Increases liquidity
Develops and increases
research coverage of your
company
Access capital in International
Markets
Investor
Easy to purchase & hold
Trades & settles in the same manner
as any other security in the investor’s
home market
Global / sector diversification
Eliminates or reduces global custody
safekeeping charges
Pays dividends & delivers corporate
action notifications in the investor’s
home currency & language
9

10. Depository Receipts
American Depository
Receipts (ADRs)
Global Depository
Receipts
(GDRs)
10

12. ADR’s are a negotiable instrument that represents ownership
of shares (ADSs) in a non-US company.
An ADR is a Stock of a foreign company which is listed on the
following stock exchanges in US
New York Stock Exchange (NYSE),
American Stock Exchange (AMEX),
 NASDAQ
ADRs carry prices in US dollars, pay dividends in US dollars,
and can be traded like the shares of US-based companies.
ADRs are dollar-denominated securities that trade, clear and
settle like any other US security
Avoids inconvenience of Cross border & Cross Currency
Transactions 12

13. ADRs do not eliminate the currency and economic risks
Securities of a foreign company that are represented
by an ADR are called American depositary shares
(ADSs).
For an ADR issue to become listed and trade on a
major U.S. exchange, it must be sponsored by the
underlying corporation. If not, the ADR issue is likely to
be traded over the counter.
13

14. 14
Types of ADR
Sponsored
ADRs
Unsponsored
ADRs
Privately
Placed
Rule 144A
Level II Level IIILevel I
Offshore
Reg S
Restricted
Programs

15. An American depositary receipt (ADR) issued by a
depositary bank without the involvement or participation -
or even the consent - of the foreign issuer whose stock
underlies the ADR.
Usually established by depositary banks in response to
investor demand.
Generally trade over-the-counter (OTC) rather than on
United States exchanges.
Considered less favorable to issuers and investors due to
lack of control by issuers
Multiple programmes: It is possible that competing
depositary banks will create multiple unsponsored ADR
programs for the same issuer 15

16. No additional reporting/requirements (i.e. no SOX, no
20-F, etc.)
Exemption under Section 12 (g)
Creates a roadblock to the Issuer
Shareholder benefits and voting rights may not be
extended to the holders of these particular securities
16

17. An American depositary receipt (ADR) issued by a bank on
behalf of the foreign company whose equity serves as the
underlying asset.
Unsponsored ADRs can only trade on the over-the-counter
market, while sponsored ADRs can be listed on major
exchanges.
There is a direct involvement of foreign company
Treated just like common stock, with complete voting rights,
and only denominated in the U.S. dollar.
Usually traded through major exchanges like NYSE and AMEX
or OTC
17

18. LEVEL I (‘OTC Facility’)
Traded in the U.S. over-the-counter (OTC) market with prices
published in the Pink Sheets
Not listed on any US securities exchange such as the New York
Stock Exchange or NASDAQ
Available for Retail Investors
Bid & Ask Prices
Expansion of Current Market base
18

19.  No reporting of accounts under U.S. GAAP or provide full
SEC disclosure
 Maintain home market accounting and disclosure
standards.
 Easiest and less expensive
 Control over the ADR’s – Depository Agreement
The company is not required to issue quarterly or annual
reports in compliance with U.S. GAAP
Companies with shares trading under a Level 1 program
may decide to upgrade their program to a Level 2 or Level 3
program for better exposure in the United States markets.
19

20.  OTC stocks are generally unlisted stocks
 Inability to meet the listing requirements
 Traded over the Counter Bulletin Board (OTCBB)
or on the pink sheets
 Decentralized
20

21. Securities are organised into 3 market places
 OTC QX - The Best Marketplace with Qualified
Companies
 OTC QB - The Venture Stage Marketplace with
Current U.S. Reporting Companies
 OTC Pink - The Open Marketplace with Variable
Reporting Companies
21

22.  The "Pink Sheets" is an electronic quotation system that displays quotes
from broker & dealers for many over-the-counter (OTC) securities
 Bid and ask quotation prices
 A daily publication compiled by the National Quotation Bureau, Market
makers and brokers
 Published by Pink Sheets LLC
 Stock symbol; “.PK”
 Categorized into
 Current Information
 Limited Information -
 No Information -
22

23. To establish a Level 1 sponsored ADR program, the
following three principal steps are required:
 File Form F-6 with SEC, register the DR’s with SEC
 Sign a deposit agreement
 Qualify for a Rule 12g3-2(b) exemption;
23

24. ADRs may be registered under the Securities Act on Form F-6 if
four conditions are satisfied :
The deposited securities are those of a foreign issuer;
 The holder of the ADR has the right to withdraw the deposited
securities at any time, subject to temporary delays, payment of
fees and compliance with legal requirements;
 The deposited securities are exempt from Securities Act
registration and freely tradable in the United States (for example,
they are not restricted securities under Securities Act Rule 144) or
are separately registered under the Securities Act; and
 As of the filing date of the Form F-6, the foreign company is
reporting under the periodic reporting requirements of Section
13(a) or 15(d) of the Exchange Act or exempt from registration
under Exchange Act Rule 12g3-2(b).
24

25. ADVANTAGES OF LEVEL I ADR
► Same financial information & disclosures as per home market
► Lowest cost to enter market
► Simple to execute
DISADVANTAGES OF LEVEL I ADR
► Limited visibility in US as it trades in OTC market
► Not listed in NYSE, AMEX, NASDAQ
► Cannot be used to offer public equity capital in the US
25

26. Enables companies to list their ADRs on NASDAQ,
AMEX, NYSE
Created from deposits of Ordinary shares in the issuers
Home Market
foreign company wants to set up a Level 2 program, it
must file a registration statement with the SEC and is
under SEC regulation
Higher visibility, More active trading; greater liquidity
Requires full registration with SEC
Can be Promoted & Advertised
26

27. Level II ADR programs must comply with the full registration and
reporting requirements of the SEC's Exchange Act, which entails
the following:
 Form F-6
 Annual reports and any interim financial
 Form 20-F
 Form 6-K, Interim financial statements and
current developments
27

28. ADVANTAGES OF LEVEL II ADR
 Provides higher visibility
 Greater opportunity to diversify issuer’s US investor
base
 Enhances company’s status & profile
DISADVANTAGES OF LEVEL II ADR
 Substantial disclosures to SEC in accordance to US laws
& US GAAP
 Many legal, accounting & corporate obligations to
fulfill
 Takes longer time as compared to level 1 &
unsponsored program
28

29.  Enables companies to list their ADRs on NASDAQ, the Amex,
NYSE
 It allows the issuer to raise capital
 Expansion of Current Market Base
 Leads to much greater visibility in the U.S. market
 Highest Level, Adhere stricter rules, Most expensive to
establish
 Can be actively Promoted & Advertised
29

30. Level III ADR programs must comply with various SEC
rules, including the full registration and reporting
requirements of the SEC's Exchange Act.
 Form F-6 registration statement, to register the ADRs
 Form F-1, including a prospectus,
 the offering price for the securities and
 the plan for distributing the shares
 Form 20-F
30

31. ADVANTAGES OF LEVEL III ADR
 Provides higher visibility
 Greater opportunity to diversify issuer’s US
investor base
 Enhances company’s status & profile
 Highest measure of visibility & publicity
DISADVANTAGES OF LEVEL III ADR
 Substantial disclosures to SEC in accordance to US
laws & US GAAP
 Takes longer time to establish & Most expensive
31

32. Foreign companies that want their stock to be limited to being
traded by only certain individuals may set up a restricted
program.
There are two SEC rules that allow this type of issuance of
shares
o Rule 144-A
o Regulation S
ADR programs operating under these 2 rules make up
approximately 30% of all issued ADRs.
32

33.  Rule 144A programs provide for raising capital through the private
placement of Depositary Receipts with large institutional investors
(QIBs) in the U.S.
 Does not require full SEC registration
 Privately placed with QIBs under the rule 144A market
 Quoted on PORTAL
 Not accessible to the general public
 It allows the issuer company to raise capital in the U.S. without
adhering to the strict regulations required by Level 3 ADRs
 At least two years from the last deposit of shares in the Rule 144A
ADR facility, the ADRs issued under the Rule 144 program may be
eligible to be merged into an unrestricted ADR facility.
33

34. ADVANTAGES OF Rule 144A
 Easy and quick to establish
 No financial reporting
 Low cost to establish
 Limited SEC registration
DISADVANTAGES OF Rule 144A
 Low visibility & Limited Liquidity
Rule 144A
(Privately placed ADRs)
34

35.  Regulation S (Reg S) DRs allow issuers to raise capital in
markets outside the United States.
 Listed on the London or Luxembourg stock exchanges
 Euro market clearing system
 SEC Regulation S – Restricts US person to trade
 A Level I program can be established in addition to a Rule 144A
program, and a Regulation S program may be merged into a
Level I program after the restricted period has expired
35

36. 36
Reg S only(non US) 144 only (US)
Objective
• Raise equity in the
International Market
outside the US
• Develop and broaden
investor base
• Raise equity in the US among
QIB’s
• Develop and broaden investor
base
Disclosure
• Depends on International
market selected
• Home Market (unless the
investor ask for the US GAAP)
Legal
documents
and
Exemption
• Depository Agreement
• Prospectus prepare as
per the requirement of
International Exchange
• Depository Agreement
• Exempted from registration
under security Act 1934, as
amended, pursuant to 12g3-
2(b)
Reporting
requirement
• Depends on exchange
and/ or regulator
• Under Rule 12g3-2(b),English
language versions of home
country disclosure must be
furnish to the SEC or pasted
on the countries Website

37. Goal Where? Who? Options
Gain new
shareholders
USA Retail Investors
Level I ADR
Level II ADR
Outside the
USA
Institutional and Retail
Investors
Reg S
Raise Capital
USA
Institutional Investors Rule 144A DR
Retail Investors Level III ADR
Outside USA
Institutional and Retail
Investors
Reg S
37

38. 38

39. Depository bank sets ratio of US ADR’s per home
country share
Ratio can be less than, greater than or equal to 1
The issuer should consider:
 Industry peers
 Exchange options
 Investor appeal
39

40. 40
Basis Ratio
Single One ADR issued for 1 Share 1:1
Multiple One ADR issued for 3 shares 1:3
Fraction Two ADR’s issued for 1 Share 2:1

41. 41
Selection of
Syndicate
Members
Documentation
Appointment of
Intermediaries
Approval
Requirements
Pre- Marketing
Roadshows
Book Building
Process &
Pricing
Offering
Circular
Listing
Task force for
due diligence
Closing of Issue
& Allotment
Post – Issue
Support

42. 42
o Approvals of Board of Directors
o Board Resolution
o Shareholders consensus
o Approvals of RBI
o ADR/GDR issue shall be treated as FDI
o Aggregate Foreign Investment would need to be limited to existing
FDI Policy
o Furnishing of Information
o In principle consent of Stock Exchanges for listing of underlying shares
o Request for listing of underlying shares
o Treatment after cancellation
Approval Requirements

43. ►Lead Manager
►Overseas Depository Bank
►Domestic Custodian Banks
►Legal Advisors
►Auditors
►Underwriters
►Listing Agent
43
Appointment of Intermediaries

44. Custodian
Depository
Issuer
Investment banks
/Underwriters
1. Provide depositary with notices of stockholder meetings
2. Provides custodian and depositary with notices of
annual and special / extraordinary stockholder,
dividends and rights offerings
3. On-going compliance with any applicable stock exchange
and SEC regulations (in coordination with legal counsel
and accountants)
4. Executes US-focused investor relations (non-US-focused
in the case of Regulation S GDRs) plan that may include
management visits to targeted US investors, the
development of sell-side research, and on-going
shareholder communications.

45. Custodian
Depository
Issuer
Investment banks
/Underwriters
1. Advise the depositary for complete delivery instructions
2. Registers the shares in the depositary’s account as
necessary with the issuer’s transfer agent / registrar
3. Confirms release of local shares upon cancellation
4. Notifies the depositary of corporate actions announced
in issuer’s home market
5. Provide depositary with copies of notices of
shareholders’ meetings, annual reports
6. Remits dividend payments
7. Maintains and communicates up-to-date local market
information on tax withholding, reclaim, regulatory and
settlement issues
8. Provides statements of share balances for reconciliation
by depositary.

46. 1. Provide advice/perspective on type of program,
exchange or market on which to list or quote
2. Advise on ratio
3. Appoint custodian
4. File Form F-6 if Level One, Two or Three program
5. Review draft registration statement or offering
memorandum, depending upon type of program to be
established
6. Coordinate with all partners to complete program
implementation
7. Provides stock transfer and registration services &
handles depositary receipt holder services
8. Detailed reporting to issuer with information on DR
holders, the markets, trends and developments
Custodian
Depository
Issuer
Investment banks
/Underwriters

47. 1. Coordinate with legal counsel on Deposit Agreement
and securities law matters
2. Prepare and issue certificates
3. Solicit market makers (Level I ADR only)
4. Announce DR program to market
5. Dividend Payment
6. Produces tax withholding documents (for ADRs), if
applicable.
7. Promotes benefit of investment in depositary receipts
to market
8. Serves in M&A transactions as exchange agent or cash
depositary
Custodian
Depository
Issuer
Investment banks
/Underwriters

48. (Level II/III/Rule 144A /Regulation S ADRs only)
1. Advise on type of program to launch and exchange or
market on which to list or quote
2. Advise on ratio
3. Cover issuer through research reports/promote DRs to
investors
4. Advise on roadshows, investor meetings, investors to
target
5. Advise on capital market issues
6. Where applicable, advise on potential merger/
acquisition candidates, and other matters such as rights
offerings, stock distributions, etc.
Custodian
Depository
Issuer
Investment banks
/Underwriters

49. (Level II/III/Rule 144A /Regulation S ADRs only)
7. If concurrent public offering:
Advise on size, pricing and marketing of offering
8. Act as placement agent or underwriter in
offering
9. Conduct roadshows with management /
introduce issuer to institutional and other
investors
10. Line up selected dealers and co-underwriters
for offering
Custodian
Depository
Issuer
Investment banks
/Underwriters

50. 1. Prepare draft deposit agreement (depositary
bank’s counsel) and file required registration
statements with the SEC
2. Manage compliance with US securities laws,
rules and regulations and perfect any securities
law exemptions (if Rule 144A/Reg S
program)(issuer counsel)
Legal Counsel
(Depositary’s and
Issuer’s)
Investor Relations
Advisor/firm
Accountants (Level 2/3
ADR’s only

51. 1. Develop long-term plan to raise awareness of
issuer’s program in the US
2. Develop communications plan and information
materials for launch activities (roadshow and
presentations to investors, launch day promotion,
meetings with financial media)
3. Coordinate with issuer’s advertising and public
relations teams on specific program plans to
support and develop company image in the US
Legal Counsel
(depositary’s and
issuer’s)
Investor Relations
Advisor/firm
Accountants (Level 2/3
ADR’s only

52. 1. Prepare issuer’s financial statements in
accordance with, or reconcile to, US GAAP
2. Review registration statement or offering
circular
Legal Counsel
(depositary’s and
issuer’s)
Investor Relations
Advisor/firm
Accountants (Level 2/3
ADR’s only

53. o Process
 A careful analysis of the orders would be conducted
 Identify investors who are critical to the transaction
 The ultimate price level would be set at a level where it
seeks to maximize proceeds while ensuring appropriate
investor allocations and a healthy aftermarket
53
Closing of Issue & Allotment

54. Syndicate
Underwriting Syndicate
Syndicate Members
Syndicate Manager
Responsibilities
Maximize demand
Optimize the sustainable offer price
Facilitate orderly marketing
Attract key “anchor” investors
54
Selection of Syndicate Members

55. Duties of team of legal, technical & financial experts :
Understanding the issuer’s business
Identifying potential risks
Analyzing of financial statement
Analyzing future prospects of the company
Obtaining information to draft the Prospectus (Offering Circular)
55
Task force for due diligence

56. o Form F-6
 A short document to be filed to register ADRs
o Registration Statement (Form F-1)
 Filed to US Securities Act of 1933 with the SEC
o Form 8-A
 A document to be filed so that the securities can be listed on the exchange
56
Listing

57. NYSE
o 1mn shares worth $100 mn or more
o Earned $10 mn over the last 3 years
NASDAQ
o 1.25 mn shares worth $70mn or more
o $11mn over the last 3 years
London Stock Exchange
o Market cap – 7 lac pounds
o 3 years audited financial statements 57
Listing Requirements

58. Background of the company
Capital Structure (existing & future)
Financial Data
Description of shares
Deployment of issue proceeds
Economic & regulatory policies of Govt. of India
Terms & Condition of ADR
Market price of securities
Status of approvals
Report of statutory auditors
Tax aspects
Details of Indian security market
58
Offering Circular/ Prospectus

59. Objectives
 Introduce the offering to investors
 Address key investor concerns
 Familiarize investors with the investment story
 To evaluate prospects of issue
 Helps in making certain important decisions like timing, size &
price of the issue.
Process
• Contacting key investors
•Meeting with institutional Investors
•Feedback Collection
•Determine target investors for road show 59
Pre- marketing

60. It represents meetings of issuers, analysts &
potential investors
• A series of group presentations to potential institutional investors
• One-on-one meetings with key “anchor” accounts
Details about the company is presented
• History, Organization Structure
• Principle Objects
• Business Lines
• Position of the Company (Domestic & international)
• Past performance & Future plans
• Competitors (Domestic & international)
• Financial Results & operating profits
• Valuation of Shares
• Review of Local stock market & economic situations
60
Roadshows

61. PROCESS :
Establish price talk
Investors submit indications of interest
Analysis of demand at various price levels
Pricing depends on:
Near future, Earning potentials, Fundamentals governing industry
Economic state of the country , Credit rating of the country
Investors sentiments, Behavior towards particular country
Interest rate
Availability of exit route
61
Book Building Process & Pricing

62. o Process
 A careful analysis of the orders would be conducted
 Identify investors who are critical to the transaction
 The ultimate price level would be set
62
Closing of Issue & Allotment

63. Manage over-allotment option by Green shoe option
Support investor relations
Aftermarket stabilization
63
Post – Issue Support

64. Audit Committee requirements
Audit Committee Financial report
Certification of Financial Reports
Management Assessment of Internal controls
Improper influence of Audits
Prohibition on loans to officers and directors
CEO & CFO reimbursement of issuer relating to an
accounting restatement
Disclosure of Material off Balance sheet transactions
Disclosure of Pro-forma, or non-GAAP financial
information
Correcting Adjustment disclosures
Code of ethics for senior financial officers
Materiality, anti-fraud and fair disclosure
64

67. 68
Investor
(US)
Local Custodian
(India)
Local Stock
Market (India)
Local Broker
(India)
Depositary
(USA)
DR Broker
(US) 2
1
3
4
56
7

68. 69
US Investor
US Broker
Depository
(US)
Custodian
(India)
Local Broker
(India)
Surrender
ADRs
Release
Shares
Sell in
Home
Country

69. Fungibility - A good or asset's interchangeability with
other individual goods/assets of the same type.
Forward Fungibility
Reverse Fungibility
70

70. Existed in India prior to 2002
DR investors could convert DRs to
underlying shares but could not reconvert
back to DRs
Affects liquidity in the DR market
71

71. Conversion of DRs into local shares and
vice versa
The GOI permitted two-way fungibility in
the 2001-2002 union budget
It is subject to availability of Headroom
72

73. The ADRs have only “limited two way fungibility”. What
this implies is that ADRs can be freely converted to
equity shares, but equity shares in India can be
converted to ADRs only to the extent of past
conversion of ADRs in that company into shares.
This is technically called “headroom”.
Since every GDR/ADR has a given number of
underlying shares backing it, the number of shares
qualifying for re-conversion into GDRs/ADRs is limited
to the number which were converted into local shares.

74. Say company X has an original issuance of 15m
ADRs.
The total number of cancellations (which takes
place when the overseas investor sells back the
DRs to the depository bank for converting them
into local shares) is 5m.
Head Room = 5 m

75. The reasoning is that when a company decides to float a GDR/ADR
issue, it is subject to sectoral caps set for foreign shareholding in
the company and the overseas equity issue has been floated only
after being vetted by regulatory agencies and the Foreign
Investment Promotion Board (FIPB).
Allowing a free flow of conversions between GDRs/ADRs and
domestic shares has been constrained by the want of regulatory
for overseas equity issues

76. The Depository bank provides a daily update on
the availability of Head Room on its website
Head room available for re-issuance is
monitored by the custodian of the underlying
shares in coordination with the depository bank
If Headroom is not available and ADR is trading
at a premium then no possibility of Arbitrage
opportunity

77. 78
US Investor
Indian Broker
to Buys Shares
US Broker
Custodian
(India)
Overseas
Depository

78. Provide a certificate to the RBI and the SEBI stating
that the sectoral caps for foreign investment in the
relevant company have not been breached
Monitor the total number of ADRs that have been
converted into underlying shares by non-resident
investors
Liaise with the issuer company to ensure that the
foreign investment restrictions, if any, are not being
breached
File a monthly report about the ADR transactions
under the two-way fungibility arrangement with the
RBI and the SEBI

79. Arbitrage opportunity involves simultaneous buying
and selling of equivalent assets in two separate
markets in order to profit from discrepancies in their
price relationship
ADR/GDR trading at premium
Sell in International Market
Buy in domestic market
ADR/GDR trading at discount
Sell in Domestic
Buy in International market
80

80. Assumptions:
ADR Price: $10.06 (ADR at a premium)
ORD Price (in USD): $10.00
Depositary Fee to Issue: 3c per ADR
81
Step Action Result
1. Identify Opportunity
2. Borrow ADR and sell it short for $10.06 ADR borrowed and sold for $10.06
3. Buy ORD for $10.00 (implied FX rate
included) $
$10.06 - $10.00 = $0.06 and one
ORD
4. Exchange ORD for ADR at Depositary and
pay 3c per ADR
$0.06 - $0.03 = $0.03 and one ADR
5. Return borrowed ADR and close position Return ADR to Lender and profit 3c

81. When there is heightened buy/sell demand in one
market over the other, the ADR/Local share will trade
at a relative premium/discount as the case maybe.
Differences in liquidity between the two markets
Restriction on the number of shares that can be
owned by foreigners

82. Non-synchronous trading session
Indian market regulation
Transaction costs
Direct Trading Costs: Includes the commissions, taxes, foreign
exchange rate commission and fees involved with buying and
selling in each market (including brokerage)
Global Custodian and Safe Keeping Fees: The arbitrageur has
to deposit the shares with a global custodian and pay a fixed
one time settlement fee $115 per trade and pay a separate
global safe keeping fee
DR Conversion Fees: The arbitrageur has to instruct the global
custodian to convert the shares to GDRs by giving instructions
to the depository bank which charges a maximum of $0.05 per
DR issuance fee
83

83. Political Risk
Exchange Rate Risk
Inflationary Risk
84

85. 86
NYSE
NASDAQ

87. Beyond the ADR, there is a second category of DR. A
Global Depositary Receipt (GDR) represents a bank
certificate issued in more than one country for shares
in a foreign company
The term GDR is used throughout the globe and
designates any foreign firm that trades on an exchange
outside its home country
The basic advantage of the GDRs, compared to the
ADRs, is that they allow the issuer to raise capital on
two or more markets simultaneously, which increases
his shareholder base

88. Listed on
London Stock Exchange
Luxemburg Stock Exchange
Frankfurt Stock Exchange
London Stock Exchange dominates
Other exchanges which will list GDRs include
Dubai International Financial Exchange (DIFX),
Singapore Stock Exchange
Hong Kong Stock Exchange
89

89. They are also known as:
European Depository Receipts
International Depository Receipts
Either issued in US Currency or in the currency
of the country the GDR is listed in.
Several international banks issue GDRs, such as
JPMorgan Chase, Citigroup, Deutsche Bank,
Bank of New York
90

90. The most significant difference between the
ADR and GDR lies in their structures
There are two types of GDRs –
The Reg S Depositary Receipts
The pairing type

91. The Reg S Type Depositary Receipt is the equivalent of
the ADR.
It is issued to the public through a sponsor bank/
brokerage
Once issued, this GDR is listed on either the
Luxembourg Stock Exchange or the London Stock
Exchange
This type of a GDR is open for every kind of investor
Unlike ADRs, where each type of ADR determines the
investors that can trade it, the Reg S type GDR can be
traded from any kind of investor to any kind of investor

92. This GDR is a combination of the Reg S type GDR and a Rule
144A ADR. So when one such GDR is sold, it essentially
implies the sale of a Reg S type GDR along with a Rule 144A
ADR
The Reg S type GDR may be listed either in London or
Luxembourg.
The holders of these GDRs will be regular investors
However, the Rule 144A ADRs are privately placed through
Qualified Institutional Buyers in the U.S
The biggest reason for such a program being subscribed to is
the fact that such a program enables the issuing company to
raise funds not just from the U.S. and not just from Europe,
but from both markets simultaneously

93. A bid order comes to the EGX demanding 2000 shares at EGP196
equivalent to $35.13 ($/EGP 5.58)
a second later in LSE there is a demand on 2000 shares of the GDR for
an ask of $35.59
An active arbitrageur can buy 2000 shares of the underpriced stock on
the EGX and short sell 2000 share of the overpriced GDR making a
gross profit of $920

94. 95
ADR GDR
Most
Commonly
listed on
NYSE LSE
Issuing
Company
Access the US Market Global access
To Raise
Capital
Within US
Within US & Outside US using
different structure
combinations

95. A foreign currency convertible bond (FCCB) is a type of corporate bond issued
by an Indian listed company in an overseas market and hence, in a currency
different from that of the issuer. The highlight of the FCCB, however, is the
option of converting the bonds into equity at a price determined at the time
the bond is issued.
It also has the benefits of a debt instrument as it includes guaranteed returns
or yields which are payable in foreign currency.
For companies, FCCBs gave them access to funds at cheaper rates, given the
fact that many of these were zero coupon bonds with a yield-to-maturity
structure , meaning the company would have to make large-scale payments
only when the bonds were redeemed. Also, the interest rates were much
lower than that of normal debt.

96. FCCB
Issues bonds denominated in
foreign currency
Mix between a debt and equity
instrument
Convertible in nature
Conversion to Equity
Liability of the company
GDR
Company deposits its shares to
a depository
Company gets proportionate
amount of GDRs
GDRs are then issued to
investors in the foreign market
Company’s own fund

97. Divestment by shareholders of their holdings of Indian companies, in the overseas
markets would be allowed through the mechanism of Sponsored ADR/GDR issue in
respect of:-
Divestment by shareholders of their holdings of Indian companies listed in India;
Divestment by shareholders of their holdings of Indian companies not listed in
India but which are listed overseas.
Such a facility would be available pari-passu to all categories of shareholders, of the
company whose shares are being sold in the ADR/GDR markets overseas. This would
ensure that no class of shareholders gets a special dispensation
The sponsoring company, whose shareholders propose to divest existing shares in the
overseas market through issue of ADRs/GDRs will give an option to all its
shareholders indicating the number of shares to be divested and the mechanism how
the price will be determined under the ADR/GDR norms. If the shares offered for
divestment are more than the pre-specified number to be divested, shares would be
accepted for divestment in proportion to existing holdings

98. The proposal for divestment of the existing shares in the ADR/GDR market would
have to be approved by a special resolution of the company whose shares are being
divested.
The proceeds of the ADR/GDR issue raised abroad shall be repatriated into India
within a period of one month of the closure of the issue.
Such ADR/GDR issues against existing shares arising out of the divestment would also
come within the purview of the existing SEBI Takeover Code if the ADRs/GDRs are
cancelled and the underlying shares are to be registered with the company as
shareholders
Divestment of existing shares of Indian companies in the overseas markets for issue of
ADRs/GDRs would be reckoned as FDI. Such proposals would require FIPB approval
as also other approvals, if any, under the FDI policy
Such divestment inducting foreign equity would also need to conform to the FDI
sectoral policy and the prescribed sectoral cap as applicable. Accordingly the facility
would not be available where the company whose shares are to be divested is engaged
in an activity where FDI is not permitted
Each case would require the approval of FIPB for foreign equity induction through
offer of existing shares under the ADR/GDR route.

99. Other mandatory approvals such as those under the Companies Act, etc. as applicable
would have to be obtained by the company prior to the ADR/GDR issue
The issue related expenses (covering both fixed expenses like underwriting
commissions, lead managers charges, legal expenses and reimbursable expenses) for
public issue shall be subject to a ceiling of 4% in the case of GDRs and 7% in the case
of ADRs and 2% in case of private placements of ADRs/GDRs. Issue expenses beyond
the ceiling would need the approval of RBI. The issue expenses shall be passed onto
the shareholders participating in the sponsored issue on a prorata basis.
The shares earmarked for the sponsored ADR/GDR issue may be kept in an escrow
account created for this purpose and in any case, the retention of shares in such escrow
account shall not exceed 3 months
If the issues of ADR/GDR are made in more than one tranche, each tranche would
have to be treated as a separate transaction
After completing the transactions, the companies would need to furnish full particulars
thereof including amount raised through ADRs/GDRs, number of ADRs/GDRs issued
and the underlying shares offered, percentage of foreign equity level in the Indian
company on account of issue of ADRs/GDRs, details of issue parameters, details of
repatriation, and other details to the Exchange Control Department of the Reserve
Bank of India, Central Office, Mumbai within 30 days of completion of such
transactions

101. Started in 1981
Global leader in consulting, technology and
outsourcing solutions
Operations in more than 30 countries
The underwriters, NationsBanc Montgomery Securities
LLC, BancBoston Roberston Stephens, BT Alex Brown
and Thomas Weisel Partners LLC.

102. Issue day Stock
exchange
Amount
mobilized
Actual price
per share ($)
ADR:
Domestic
share
1.03.1999 NASDAQ $ 70.38
million
68 2:1
30.07.2003 NASDAQ $ 294 million 49 1:1
09.05.2005 NASDAQ $ 1.07 billion $ 67 1:1
21.11.2006 NASDAQ $ 1.6 billion 53.5 1:1

103. Excess demand with limited supply of ADR’s.
Few opportunities in the US to invest in companies that are
growing at the 20–30% rates
Official barriers prevent foreign investors from buying the shares
trading in India
ADR’s provides a value added layer – transparency, liquidity and
greater coverage than the existing Indian stock

104. Size of Issue
1.8 million ADS/ 0.9 million equity shares
Number of ADS per equity share 2
Offer Price $ 27.88 per ADS/ $55.76 per share
Actual Price Obtained $34 per ADS/ $ 68 per share
Premium on the Offer Price 22% or $6.12 per ADS
Issue Amount $61.2 million
Green shoe Option 15% of $ 61.2mn = $ 9.18mn
Total Amount raised $ 70.38 million
BSE closing price Rs 3201/- as on 10 March, 1999

105. Conversion of existing domestic equity shares into ADRs
Allows shareholders in India to convert and sell their equity
shares in the US market and realize the proceeds, net of issue
expenses
There will be no additional issue of any equity shares by the
company
No money will accrue to the company out of this issue

106. Issue cost $ 11.7 million (about 4% of Issue Size)

107. Net issue expense = 3.98% of the gross proceeds
Infosys had not received any proceeds of this offering
Total issue increased the size of US float to 14% of its capital

108. Issue expense 3.98% of the gross proceeds

109. These are financial instruments that allow foreign companies to mobilize
funds from Indian Capital Markets.
IDRs are depository receipts denominated in Indian Rupees issued by a
Domestic Depository in India.
IDRs represents interest in the shares of a Non-Indian company’s equity.
IDRs provides a chance to the Indian investors to hold equity shares of
foreign company.
It is created by the Indian Depository in India against the underlying equity
shares of the issuing foreign company to raise funds from the Indian markets.
IDRs are issued in the Demat form. However, at the option of the IDRs
holders these can be converted into physical form.
Like equity shares, these are unsecured instruments and negotiable from one
investor to another investor

110. Issuer
(Outside India)
Domestic
Depository
(In India)
Custodian
(Outside India)
Holds
shares for
Domestic
Depository
Issuer of
IDRs to
Investors in
India
IDRs
Demat IDRs
listed on
NSE/BSE
IDR Holders – FIIs,
NRIs, Retail, Non-
Institutional Investors

111. As per the Companies IDR rules, as amended till date, the undernoted are the
eligibility criteria for the issue of IDRs:
Sl. No. Criteria Requirements
1 Capital
The issuer company should have a pre-issue capital and free
reserve of at least US $ 50 million (app. 225 crore)
2
Market
Capitalization
The foreign issuing company should have a market
capitalization of $ 100 million or more during last three years.
3
Operating
History
Continuous trading record or history on a stock exchange in its
Parent Country for at least three immediately preceding years.
4 Profits
A track record of distributable profits for at least three out of
immediately preceding five years.
5
Other
Requirements
Fulfils such other eligibility criteria as may be laid down by
SEBI from time to time in this behalf.

112. Sl. No. Criteria Requirements
1 Issue Size The size of an IDR issue shall not be less than Rs. 50 crore
2
Minimum
application
amount
The minimum application amount shall be Rs. 20,000/-
3 Extent of issue
The number of underlying equity shares offered in a financial
year through IDRs offering shall not exceed 25% of the post-
issue number of equity shares of the issuing company.
4
Allocation of
shares/
Reservation of
quota
Retail individual investors 30% (including NRIs)
Non-institutional investors 20% (including NRIs)
Qualified institutional buyers 50% (Except Insurance
Companies and Venture Capital funds)

113. Standard Chartered PLC → the first global company to file
for an issue of Indian depository receipts in India.
Standard Chartered PLC listed on the London and Hong
Kong stock Exchanges.
Objective of the issue: To grow our market visibility and
brand presence in India
To List it on BSE and NSE
End use of the fund proposed to be raised through the
issue is to support growth across the business of the
company internationally
114

114. 115
 Parties to the Issue:
 Details of the Issue:
Issuing Company (Sponsor) Standard Chartered Plc
Overseas Custodian
Bank of New York Mellon
Domestic Depository
Standard Chartered Securities
(India) Ltd
R&T Agent
Karvy Computershare Private
Limited
Listing Date Friday, June 11, 2010
Issue Size 240 million IDRs
Listing price Rs 106
Ratio 10 IDRs to 1 underlying