ADR & GDR

GDR/ ADR's offer an option to listed companies to tap

overseas equity markets.
NRI CAN’T INVEST DIRECTLY
 If a foreign born individual investor whose parents or
grand parents were never part of India, Indian Capital
Markets are closed for you for direct investment.
 Indian rupee is still controlled by Indian government
for Capital account transactions.
 This means, resident Indian nationals are not allowed to
invest in overseas stocks and likewise, foreign nationals
can not invest in Indian markets.
ADR – AMERICAN DEPOSITORY
RECEIPTS
 An ADR is a negotiable U.S. certificate representing ownership of
shares in an non-US corporation. ADR’s are quoted and traded in U.S.
Dollars in the US securities market. Also, the dividends are paid to
investor in US dollars.

 ADRs were specifically designed to facilitate the purchase, holding and

sale of non-US securities by US investor, and to provide a corporate
finance vehicle for non-US companies.
Domestic Stock U.S. AMERICA
Exchange

CERTIFICATE
SHARES
ABOUT ADR
 ADRs first introduced in 1927
 The stock of many non US companies, traded on US
exchanges through the use of ADRs.
 ADRs enable US investors to buy shares in foreign
companies without undertaking cross-border
transactions.
 The shares of the non-US corporation trade on a non-US
exchange, while the ADRs trade on a US exchange.
TYPES OF ADR
 Unsponsored ADR
 Sponsored ADR
 Level I
 Level II
 Level III
INDIAN ADRS

ADR ISSUE SYMBOL INDUSTRY EXCHANGE

DR. REDDY'S LABORATORIES LTD. RDY Pharmaceutical NYSE

HDFC BANK LTD. HDB Banks NYSE

ICICI BANK LTD. IBN Banks NYSE
INFOSYS TECHNOLOGIES LIMITED INFY Technology Services NASDAQ

MAHANAGAR TELEPHONE NIGAM LIMITED MTE Fixed Line Comm. NYSE

REDIFF.COM INDIA LTD REDF Technology Services NASDAQ

SATYAM COMPUTER SERVICES LIMITED SAY Technology Services NYSE

SIFY LTD. SIFY Technology Services NASDAQ

VIDESH SANCHAR NIGAM LIMITED VSL Fixed Line Comm. NYSE

WIPRO LTD. WIT Technology Services NYSE

GDR – GLOBAL DEPOSITORY RECEIPT
 Negotiable instrument denominated in freely convertible
currency.

 Global funding vehicle for raising capital.

 It can be traded globally in exchange or otc market.

ABOUT GDR
 In may 1992 by reliance industries US $ 150 mn.

 After that market pulled down due to several reasons.

 Political instability, falling markets, liquidity crunch etc.

 Biggest Asian GDR issued by SBI in 1997 for US $ 350

mn.
MAIN INDIAN GDR
 Bajaj Auto  L&T

 Dr. Reddys  MTNL

 HDFC Bank  Ranbaxy Laboratories

 Hindalco  Reliance Industries

 ICICI Bank  State Bank of India

 Infosys Technologies  VSNL

 ITC  WIPRO
HOW DOES ADR/GDR WORKS?
 Let us take Infosys example – trades on the Indian stock
at around Rs.2000/-
 This is equivalent to US$ 40 – assume for simplicity

 Now a US bank purchases 10000 shares of Infosys and

issues them in US in the ratio of 10:1
 This means each ADR purchased is worth 10 Infosys
shares.
 Quick calculation means 1 ADR = US $400

 Once ADR are priced and sold, its subsequent price is

determined by supply and demand factors, like any
ordinary shares.
ADR/GDR LISTING
ADR Listing:
 NASDEQ

 AMSE

 NYSE

GDR Listing:
 London Stock Exchange

 Luxembourg Stock Exchange

 DIFX

 Singapore Exchange

 Hong Kong Exchange

 ADR VS GDR
Basis of ADR GDR
comparison

Centre The NYSE which is the
largest stock exchange In
the world is where the
ADR is traded.
GAAP Foreign companies listing
in the US must
reconcile their accounts to
US GAAP.
The LSE Is not as large as the
NYSE overall, but Is the global
centre for
International equities, which
dominate In
Turnover.
LSE satisfied with a statement
of the
difference between the UK and
Indian
Accounting standards
 Basis of ADR GDR
comparison

Retail A public offering in the US GDR is Issued only to

allows an issuer to access QIBs but ordinary investors
the US retail market. This cannot participate.
provides extra source of
demand.

Liability Legal liability of both a Legal liability of a

company and its company and its
individual directors directors is less than in the
increased by a full US case of an
listing. ADR.
 Basis of ADR GDR
comparison

Cost US listing could be GDR listing on the LSE is

expensive. Total initial costs comparatively
likely to be in the range of Inexpensive. Initial costs
US $10,00,000 likely to be in
to US $20,00000 the range US $2,00,000 to
US $4,00,000.
INVESTMENT IN A FOREIGN COMPANY
An Indian company can also invest in a foreign company which is
engaged in the same core activity in exchange of ADRs/GDRs issued to the
foreign company in accordance with the ADR/GDR Scheme for the shares
so acquired provided that the following conditions are satisfied.
 The Indian company has already made an ADR/GDR issue and that such
ADRs/GDRs are currently listed on a stock exchange outside India.
 The investment by the Indian company does not exceed the higher of an amount
equivalent to USD 100 Million or an amount equivalent to 10 times the export
earnings of the Indian company during the preceding financial year.
e.g. Company X invests $ 100 m in Fiserv($ 51.60)
 At least 80% of the average turnover of the Indian Party in the previous 3 financial
years is from the activities/sectors included in Schedule or the Indian Party has an
annual average export earnings of at least Indian Rupees1,000 Million in the
previous 3 financial years from the activities/sectors included in Schedule 1 to
FEMA 19.
e.g. Company X avg. export earning is Rs. 12000 million
 The ADR/GDR issue is backed by a fresh issue of underlying equity shares
by the Indian company.
 The total holding in the Indian company by non-resident holders does not
exceed the prescribed sectoral cap.
 The valuation of the shares of the foreign company is done in the following
manner:
 If the shares of the foreign company are not listed, then as per the
recommendation of an investment banker, or
 If the shares of the foreign company are listed then as per the formula
prescribed therein.
Within 30 days from the date of issue of ADRs/GDRs in exchange
of acquisition of shares of the foreign company, the Indian company
is required to submit a report in Form ODG with RBI.
DEVELOPMENTS
• Accentia Technologies: Listed USD 20 Mn worth of GDR at
Rs. 10 per share on
the Singapore exchange . It has already acquired two HRCM
companies in US and
in process of acquiring 3 others in India
• BSEL Infra Realty : Raised USD 35.30 Mn via GDR issue as
of Jan 08
• IndusInd Bank: Raised USD 51.73 Mn through GDRs as of
Jun 08, listed on the Luxembourg Stock Exchange
• Indiabulls Real Estate Ltd: Raised USD 400 Mn in Jul 2007,
listed on the Luxembourg Stock Exchange.