Roll No.

  Name  Division
  Pavan Bhandarkar 
07  Aniket Shende 
13  Banti Gupta 
20  Gunjan Gundecha  B
40  Rahul Nair 
  Pravik Bhave 
INDIRA INSTITUTE OF MANAGEMENT
PUNE

Subject: Forex and Treasury

Management

Topic: ADRs & GDRs

Semester -II
 Guided by: Prof. Sumedha Tuteja
Group number: 11
Group Members:
Index
1. MEANING AND CONCEPT
American Depository Receipts and Global Depository Receipts are in form of
Depositary Receipts (DRs) as 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. DRs are traded in Stock Exchanges in the US,
Singapore, Luxembourg 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) 
 
AMERICAN DEPOSITORY RECEIPT (ADRS) 
An American Depository Receipt (ADR) is a negotiable receipt which
represents one or more depository shares held by a US custodian bank, which in
turn represent underlying shares of non-issuer held by a custodian in the home
country. ADR is an attractive investment to US investors willing to invest in
securities of non-US issuers for following reasons 
 ADRs provide a means to US investors to trade the non-US company’s shares
in US dollars ADR is a negotiable receipt (which represents the non-US share)
issued in US capital market and is traded in dollars. The trading in ADR
effectively means trading in underlying shares. 
  ADRs facilitate share transfers. ADRs are negotiable and can be easily
transferred among the investors like any other negotiable instrument. The
transfer of ADRs automatically transfers the underlying share. 
  The transfer of ADRs does not involve any stamp duty and hence the transfer
of underlying share does not require any stamp duty.
  The dividends are paid to the holders of ADRs in U.S. dollars. 
 
GLOBAL DEPOSITORY RECEIPTS (GDRS) 
Global Depository Receipts are negotiable certificates with publicly traded
equity of the issuer as underlying security. An issue of depository receipts
would involve the issuer, issuing agent to a foreign depository. The depository,
in turn, issues GDRs to investors evidencing their rights as shareholders.
Depository receipts are denominated in foreign currency and are listed on an
international exchange such as London or Luxembourg. 
 GDRs enable investors to trade a dollar denominated instrument on an
international stock exchange and yet have rights in foreign shares. The principal
purpose of the GDR is to provide international investors with local settlement.
The issuer issuing the shares has to pay dividends to the depository in the
domestic currency. The depository has to then convert the domestic currency
into dollars for onward payment to receipt holders. GDRs bear no risk of capital
repayment. 
 GDRs are also issued with warrants attached to them. Warrants give the
investors an option to get it converted into equity at a later date. Warrants help
the issuer to charge some premium on the GDRs sold and it also helps to
increase the demand of the GDR issue. The other advantage to the issuer is that
it will not have to pay dividends on the warrants till the conversion option is
exercised. The disadvantage to the issuer lies in delayed receipt of full proceeds
from the issue and in case the conversion option is not exercised the expected
proceeds will not be realised 
 
2. Features 

a) ADR  
Amercing depository receipt also known as ADR refers to those shares which
are issued by the foreign company with the help of bank located in America for
investors of America looking to invest in foreign companies. Hence for example
suppose company A which is doing business in Europe region and is listed in its
own country, now investors in the USA wants to invest in the business of the
company than they will hesitate to invest in the company’s local stock market
due to country and currency risk but if its ADR is listed then they will happily
invest in the company. In order to understand more about this concept, one
should look at some of the important features of American depository receipt – 
Characteristics of American Depository Receipt 
i. Trade in US Markets 
The first feature of American depository receipt is that they trade in American
markets only and not any other stock markets of the world, hence an investor
can only buy and sell ADR in US markets only. Hence for example if you are a
resident of the USA and have bought ADR of London based company and, in
few years, you shift to London then you cannot sell the ADR of London based
company in London you have to sell those ADR in the US only. 
ii. Pivotal Role of Banks 
 In case of American depository receipt, the banks of the US play a key role
because any company thinking of listing its shares in the form of ADR will have
to contact US banks who in turn will buy shares from the company and keep it
as security before offering the ADRs to the investors through US stock
exchange. In simple words, without the help of US banks, no company can issue
American depositary receipts in the American stock markets. 
iii. Currency Factor 
Currency plays an important part because the return of the investor of ADR is
dependent on foreign exchange fluctuations. In simple words when a company
issues dividends then currency will come into play because US investors will
get dividends after factoring exchange rate which may or may not be favorable
to the investor. 
iv. International Diversification 
If US investors want to diversify them portfolio internationally then ADR is a
good option because through American depository receipt an investor can easily
benefit from the growth of companies that are in emerging markets where
growth rate is more than developed markets like the USA. 
v. Fraction or Multiple Stocks 
In the case of ADR, it is not necessary that the American depositary receipt
should be on one-to-one basis rather the underlying shares can be in fraction or
multiple shares. Hence for example, if company A issues 100000 stocks to the
US bank and US bank in turn issues 50000 ADR than it implies that 1 ADR is
equal to 2 stock or if US bank issues 200000 ADR than it implies that 2 ADR is
equal to 1 stock of the company. 
As one can see from the above the American depository receipt has many
unique characteristics and that is the reason why any company looking to
attract, as well as win the confidence of investors from America, should go
ahead and issue ADR. 

b) GDR 
GDR is an instrument issued abroad by a company to raise funds in some
foreign currencies and is listed and traded on a foreign stock exchange. 

Features of GDR 
i. It is a negotiable instrument and can be traded freely like any other
security. 
 ii. Indian companies with sound financial track of three years are readily
allowed to access international financial markets through
GDR. However, clearances are required from the Foreign Investment
Promotion Board (FIPB) and the Ministry of Finance. 
iii. GDRs are issued to investors across the country. It is denominated in any
acceptable freely convertible currency. 
iv. GDR is denominated in any foreign currency but the underlying shares
would be denominated in local currency of the issuer. 
v. The holder is entitled to dividend and bonus on the value of shares
underlying the GDR. 
vi. The investor can convert GDR into equity shares, and sell the shares
mentioned in the GDR through a local custodian. This provision can be
used after 45 days from the date of issue. 
vii. Under GDR, the issuing company transacts with only one entity for all its
transactions. 

3. Difference Between ADRS And GDRS

 
Following are some of the points of difference between ADR and GDR 
 
BASIS FOR
ADR  GDR 
COMPARISON 
Acronym  American Depository Global Depository
Receipt  Receipt 
Meaning  ADR is a negotiable GDR is a negotiable
instrument issued by a US instrument issued by the
bank, representing non- international depository
US company stock, bank, representing foreign
trading in the US stock company's stock trading
exchange.  globally. 
Relevance  Foreign companies can Foreign companies can
trade in US stock market.  trade in any country's
stock market other than
the US stock market. 
Issued in  United States domestic European capital market. 
capital market. 
    Non-US Stock Exchange
  American Stock such as London Stock
 Listed in  Exchange such as NYSE Exchange
or NASDAQ  or Luxemburg Stock
Exchange. 
Negotiation  In America only.  All over the world. 
Disclosure Requirement  Onerous  Less onerous 
Market  Retail investor market  Institutional market. 

4. Categories:

a. ADRs:
 
All ADRs are categorized into two broad categories – 
i. Sponsored ADRs 
A sponsored ADR is created through an agreement between a non-American
company and an American bank. 
Here, the company handles all the costs related to the issuing of the receipts in
the American markets. 
In return, the American bank handles all transactions between the company and
the American investors through the depository receipts. 
These ADRs, like normal company shares, offer voting rights to their holders. 
ii. Unsponsored ADRs 
These ADRs are created by American banks without the involvement or the
permission of a non-American company. 
Because of this, different banks can issue unsponsored ADRs for the same
company as well. 
However, since they don’t involve the company’s participation, they are usually
traded over-the-counter or OTC. 
They also don’t offer voting rights to their shareholders. 
These ADRs are further categorized into three more types – 
 Type I ADR: These are only to establish a presence in the American
market. They don’t permit the raising of funds. 
 Type II ADR: These cannot be used to raise funds, but they are
permitted to have a higher visibility and trading volume than Type I
ADRs. 
 Type III ADR: These are a prestigious category of ADRs. The
companies issuing these are allowed to raise funds and float an IPO on
the American stock markets as well. 
 b. GDR 
There are two broad categories of GDRs – 
i. Rule 144A GDRs 
These GDRs are those which operate through the rule 144A of the Securities
Exchange Commission (SEC) of the US. This rule allows non-American
companies to trade and raise capital in the American Markets. 
It also makes these GDRs a cheaper alternative to raise capital from American
markets than Level III ADRs. 
ii. Regulations of GDRs 
These GDRs are those which help non-American companies raise funds and
establish a trading presence in the European markets only. 
These GDRs usually trade on the London or Luxembourg Stock Exchange only,
and are popularly known as Reg S GDRs. Only non-American investors can
trade in Reg S GDRs. 
A company can issue both Reg S and Rule 144A GDRs, but they will be subject
to different laws. 

5. List of Indian ADRs and GDRs Companies:

a. ADRs:

The Complete List of Indian ADRs trading on the US Exchanges as of Sept 27,
2021 are listed below: 

Sr. 
Name  Ticker  Exchange Industry 
No. 
1  Azure Power Global AZRE  NASDAQ Utility 
Limited 
2  Dr. Reddy's Laboratories  RDY  NYSE  Pharma. & Biotech. 
3  Eros STX Global ESGC  NYSE  Entertainment 
Corporation 
4  HDFC Bank  HDB  NYSE  Banks 
5  ICICI Bank  IBN  NYSE  Banks 
6  Infosys  INFY  NYSE  Software&ComputerSvc 
7  MakeMyTrip Limited  MMYT  NASDAQ Travel&Leisure 
8  SIFY Technologies  SIFY  NASDAQ Software&ComputerSvc 
9  Tata Motors  TTM  NYSE  Industrial Engineer. 
 10  Vedanta  VEDL  NYSE  Construct.&Materials 
11  Wipro  WIT  NYSE  Software&ComputerSvc 
12  WNS Holdings  WNS  NYSE  Support Services 
13  Yatra Online, Inc.  YTRA  NASDAQ Travel&Leisure 
 
Example of Indian MNC with ADR: 
Infosys ADR 
Infosys Limited is an India-based IT company that provides business
consulting, information technology, and outsourcing services. It was ranked as
the second - largest Indian IT company in 2017. It trades on the NYSE under
the symbol INFY. 

b. GDRs:
The complete list of Indian GDRs trading in the London, Singapore and
Luxembourg exchanges and on the Portal as of Feb 15, 2020 are shown in the
table below: 

 
Sr.   Company Name  Ticker  Exchange  Sector 
No. 
1  Aditya Birla Capital ADIT  Luxembourg Stock Financial Services 
- 144A  Exchange -Euro
MTF 
2  Ambuja Cements - --  Luxembourg Stock Construct.&Materials 
Reg. S  Exchange 
3  Apollo Hospitals - APHG  Luxembourg Stock HealthCareEquip.&Ser 
Reg. S  Exchange -Euro
MTF 
4  Aptech (Lux Listed) --  Luxembourg Stock Software&ComputerSvc 
- Reg. S  Exchange 
5  Aqua Logistics - --  Luxembourg Stock Support Services 
Reg. S  Exchange 
6  Axis Bank - 144A  AXBA  London Stock Banks 
Exchange 
7  Axis Bank - Reg. S  AXB  London Stock Banks 
Exchange 
8  Bajaj Holdings & BAUD  London Stock Automobiles & Parts 
 Investment - Reg S  Exchange 
9  Bharat Forge - 144A  --  Luxembourg Stock Indust.Metals&Mining 
Exchange 
10  Bharat Hotels - Reg. --  Luxembourg Stock Travel & Leisure 
S  Exchange 
11  Bombay Dyeing & --  Luxembourg Stock Personal Goods 
Manufacturing - Exchange 
Reg. S 
12  CG Power and CGVA  London Stock Electron. &ElectricEq 
Industrial Solutions- Exchange 
144A 
13  CG Power and CGVD  London Stock Electron. &ElectricEq 
Industrial Solutions- Exchange 
Reg. S 
14  Cipla - Reg. S  CIPLG  Luxembourg Stock Pharma. & Biotech. 
Exchange -Euro
MTF 
15  Dish TV India - Reg. --  Luxembourg Stock Electron. &ElectricEq 
S  Exchange 

6. Process:

a. American Depository Receipt (ADR) process:

Process of issuing ADRs. 
i. Shares sold to U.S. Bank 
 The domestic company, already listed in its local stock exchange, sells its
shares in bulk to a U.S. bank to get itself listed on US exchange. 
ii. Issues Certificates (ADRs) against Shares as Security 
The U.S. bank accepts the shares of the issuing company. The bank keeps the
shares in its security and issues certificates (ADRs) to the interested investors
through the exchange. 
iii. Setting Price 
Investors set the price of the ADRs through bidding process in U.S. dollars. The
buying and selling in ADR shares by the investors is possible only after the
major U.S. stock exchange lists the bank certificates for trading. 
iv. Approval by SEC 
The U.S. stock exchange is regulated by Securities Exchange Commission,
which keeps a check on necessary compliance that need to be complied by the
foreign company. 

b. Global Depository Receipt process:

 The domestic company enters into an agreement with the overseas depository
bank for the purpose of issue of GDR. 
 The overseas depository bank then enters into a custodian agreement with the
domestic custodian of such company. 
 The domestic custodian holds the equity shares of the company. 
 On the instruction of domestic custodian, the overseas depository bank
issues shares to foreign investors. 
 The whole process is carried out under strict guidelines. 
 GDRs are usually denominated in U.S. dollars. 

7. Advantages and Disadvantages:

a. ADRs:
Advantages of American Depository Receipt (ADR): 
 The American investor can invest in foreign companies which can
fetch him higher returns. 
 The companies located in foreign countries can get registered on
American Stock Exchange and have its shares trades in two different
countries. 
 The benefit of currency fluctuation can be availed. 
 It is an easier way to invest in foreign companies as there are no
restrictions to invest in ADR. 
 ADR simplifies tax calculations. Trading in shares of foreign
company in ADR would lead to tax under US jurisdiction and not in
the home country of company. 
 The pricing of shares of foreign companies in ADR is generally
cheaper. Hence it provides additional benefit to investors. 

Disadvantages of American Depository Receipt (ADR): 

 Even though the transactions in ADR take place in US dollars, still they
are exposed to the risk associated with foreign exchange fluctuation. 
 The number of options to invest in foreign companies is limited. Only a
few companies feel the necessity to register themselves through ADR.
This limits the choice available to US investor to invest. 
  The investment in companies opting for ADR often becomes illiquid as
an investor needs to hold the shares for the long term to generate good
returns. 
 The charges for the entire process of ADR are mostly transferred on
investors by foreign companies. 
 Any violation of compliance can lead to strict action by the Securities
Exchange Commission. 

b. GDR:
Advantages of GDR:
The following are the advantages of Global Depository Receipts: 
 GDR provides access to foreign capital markets. 
 A company can get itself registered on an overseas stock exchange or
over the counter and its shares can be traded in more than one currency. 
 GDR expands the global presence of the company which helps in getting
international attention and coverage. 
 GDR are liquid in nature as they are based on demand and supply which
can be regulated. 
 The valuation of shares in the domestic market increase, on listing in the
international market. 
 With GDR, the non-residents can invest in shares of the foreign
company. 
 GDR can be freely transferred. 
 Foreign Institutional investors can buy the shares of company issuing
GDR in their country even if they are restricted to buy shares of foreign
company. 
 GDR increases the shareholders base of the company. 
 GDR saves the taxes of an investor. An investor would need to pay tax if
he purchases shares in the foreign company, whereas in GDR same is not
the case. 
 
Disadvantages of GDR:
 The following are the disadvantages of Global Depository Receipts: 
 Violating any regulation can lead to serious consequences against the
company. 
 Dividends are paid in domestic country’s currency which is subject to
volatility in the forex market. 
  It is mostly beneficial to High Net-Worth Individual (HNI) investors due
to their capacity to invest high amount in GDR. 
 GDR is one of the expensive sources of finance. 
 

8. Risks of Investing in American Depository Receipts: 

Although ADR trade in the domestic US markets in dollars, they possess some

degree of risk. Here are some of the risks that face ADRs: 
 Currency Risk:  
A foreign company may be profitable but its ADRs may lose value due to
currency exchange rate fluctuations. When buying ADRs, consider the
stability of ADR’s home currency and its history against the US dollar.
Currency fluctuations can result in significant losses for investors. 
 Political Risk: 
           An ADR is affected by the home country’s political stability and
sanctions. Before investing in  an ADR, research the
current situation in the issuer’s home country. If there are trading sanctions
related to the country, the ADR prices will be affected.  
 Inflationary Risk: 
        Inflation risk is an extension of the currency risk. If the home country
experiences high inflation, this will make its currency less valuable, and that
will affect the ADR prices. 

9. Conclusion: 
a. ADR: 
 ADRs provide the US investors the ability to trade in foreign companies
shares.  
 ADR makes it easier and convenient for the domestic investors in US to
trade in foreign companies shares.  
 ADR provides the investors an opportunity to diversify their portfolio
by investing in companies which are not located in America. This
eventually leads to investors investing in companies located in
emerging markets, thereby leading to profit maximization for investors. 
 
b. GDR: 
 GDR is now one of most important source of finance in today’s world.  
 With globalization, every company is willing to expand its wings.  
 GDR makes it possible for such companies to reach and tap international
markets. 
  GDR provides companies in emerging markets with opportunities for
rapid growth and development.