American Depository Receipts (ADRs)
 ADR is a stock that trades in stock exchanges in the

United States. It is a dollar denominated form of equity ownership in a non-US company.
 Each ADR represents a specific number of shares (one

or more) in a foreign corporation.
 ADRs pay dividends in US dollars.  ADRs are traded on NYSE, NASDAQ and AMEX in the

United States.
 ADRS were introduced in the financial markets in 1927.

 This bulk lot is then bundled into groups and re-issued on NYSE.  These complexities involved trading at different prices and differing currency values.  So. US banks (acting as depositories) simply purchase a bulk lot of shares from the foreign company.How did ADRs start…  Due to complexities involved in buying shares in foreign countries. NASDAQ and AMEX. .

10 shares of the foreign company may be equal to 1 ADR. the foreign company provides detailed financial information to the sponsor or depository bank. typically called ‘ADR Ratio’ could be less than or greater than 1.g. So ratio is pegged at 10:1. .  This ratio is set in such a way that an ADR’s price is high enough to show substantial value. yet low enough to make it affordable for individual investors.Cont…  In return.  The ratio.  For e.  The depository bank sets the ratio of ADRs per actual share of the foreign company.

its subsequent price is determined by supply and demand factors.58 – assume this for simplicity. like any ordinary share. This is equivalent to US$4. Once an ADR is priced and sold.How are ADRs priced?  Let us assume that Russian Vodka Ltd. and re-issues them in the US at a ratio of 10:1 This means that each ADR you purchase is worth 10 shares on the Russian stock exchange. A quick calculation tells us that each ADR should have an issue price of US$45.58 per share X 10 shares) – since 10 shares equal 1 ADR.80 (US$4.    . a US bank purchases 30 million shares of Russian Vodka Ltd.   Now. trades on a Russian stock exchange at 127 Russian rubles.

This is to make the price of each ADR attractive to buyers.An example…  Most investors avoid investing in penny stocks or stocks trading at very low valuations. majority of ADRs range between $10 and $100 per share. It may appear like a low performing stock. if in the home country – say Russia - the share value is considerably less. then each ADR would be accordingly structured to include more shares.  This low price in US dollars may not reflect the company’s real valuation in the United States.  That is why. .  Thus.

83 18.22 7. INFOSYS LTD. TATA MOTORS LTD.87 40. ICICI BANK LTD. REDDY'S LABORATORIES LTD.ADR CURRENT PRICES Company WIPRO LTD.65 8. STERLITE INDUSTRIES (INDIA) LTD.57 36 20. TATA COMMUNICATIONS LTD.05 34. HDFC BANK LTD.4 30. DR. USD 7.6 INR 347 2209 939 588 2201 244 00 1672 102 . PATNI COMPUTER SYSTEMS LTD.

Larsen & Toubro Ltd. USD 24.72 24.GDR CURRENT PRICES COMPANY Rolta India Ltd.38 . GAIL (India) Ltd.25 26.47 38.75 77. 12.71 Mahindra & Mahindra Ltd. State Bank of India Reliance Industries Ltd.

ADVANTAGES OF ADR  Cost-effective – ADRs are an easy and cost-effective way to buy shares in a foreign company.   . They save money by reducing administration costs and avoiding foreign taxes on each transaction. allowing them to tap into the wealthy North American equity markets. Diversification Investor gains the potential to capitalize on emerging economies by investing in different countries More US exposure Foreign entities favor ADRs because they get more US exposure.

Inflationary Risk – Currency of a country with high inflation becomes less and less valuable each day. in previous example) is stable.Risks from ADR  Political Risk – Investors in ADRs need to ask themselves if the government of the home country (Russia.   . the effects will be felt on the price of the ADR held by an investor. If the Russian rubles gets devalued. This can result in a big loss even if the company is doing well. Exchange Rate Risk – Stability of the home country’s currency (Russian rubles) needs to be assessed as well. This can be a big blow to a company’s business due to reduced purchasing power and will reflect on its share price.

TYPES OF ADR DEPOSITARY RECEIPTS ADR LEVEL 1 LEVEL 2 LEVEL 3 144 A .

     which purchases shares of foreign companies Offered for sale globally through the various bank branches Shares trade as domestic shares Negotiable instrument denominated in freely convertible currency.GDR Global Depositary Receipts  GDR is a certificate issued by a depository bank. Traded globally in Exchange or OTC market. Global funding vehicle for raising capital. .

Large part of the GDR programs consists of a US tranche. typically in the Euro markets. e. which is privately placed and a non-US tranche that is sold to investors outside the United States. Listed on European stock exchanges.  Frankfurt Stock Exchange  Luxembourg Stock Exchange  London Stock Exchange (LSE) International. .CONTD…. on the OTC market in London and on the private placement market in the US. and traded at two other places besides the place of listing.g.

 Transfer or issue of any security by a person resident outside India . prohibit. any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. restrict or regulate the following Transfer or issue of any foreign security by a person resident in India.REGULATORY PROVISIONS FOR ADR/GDR 1. the Reserve Bank may. Section 6 (3) (b) of Foreign Exchange Management Act (FEMA). (2) Without prejudice to the generality of the provisions of sub-section (2). 1999 reads as follows: Capital account transactions. by regulations. – (1) Subject to the provisions of sub-section (2).

in consultation with the Central Government.CONTD… (3) The Reserve Bank may. (b) the limit up to which foreign exchange shall be admissible for such transactions: Provided that the Reserve Bank shall not impose any restriction on the drawl of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary courts of business . specify(a) Any class or classes of capital account transactions which are permissible.

Two different GDR structures  Unitary Structures  Bifurcated Structure .

1.ISSUANCE OF GDR Shareholder Approval Needed 1. Opening of bank account outside India Notifying the stock exchange . 3. Offering memorandum Fixation of issue price 2.

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

GDR is Issued only to QIBs but ordinary investors cannot participate.000to US $20. . This provides extra source of demand.00000 A public offering in the US allows an issuer to access the US retail market.000 to US $4. Retail Liability Legal liability of a company and its directors is less than in the case of an ADR.00.COST Initial costs likely to be in the range of US $10.000. Initial costs likely to be in the range US $2.00. Legal liability of both a company and its individual directors increased by a full US listing.00.

Collects . . remits dividends and forwards notices received from the depository bank.GDR CUSTODIAN BANK DEPOSITORY BANK  Custodian Bank located in same country  Works with the Depository Bank and follows instructions from the depository bank.

relative valuations. market conditions and also international status of the company .GDR MARKET  GDRs can be created or cancelled depending on demand and supply. more corporate stock is placed in the custodian bank in the depositary bank account. analysts recommendations.  Factors governing GDR prices are company track record. The depositary bank then issues the new GDRs.  When shares are created.

GDR Listing  London Stock Exchange  Luxembourg Stock Exchange  DIFX  Singapore Exchange  Hong Kong Exchange .

more larger and diverse shareholder base and the ability to raise more capital in international markets However.e. Easier trading. GDR issuance provides the company with visibility. payments of dividends are in the GDR currency GDRs are liquid because they are based on demand and supply which is regulated by creating or cancelling shares. laws. they have foreign exchange risk i.GDR-Advantages and Dis-advantages  GDRs allow investors to invest in foreign     companies without worrying about foreign trading practices. currency of issuer is different from currency of .

they can invest directly in Indian companies without going through the hassle of understanding the rules and working of the Indian financial market .since ADRs and GDRs are traded like any other stock  NRIs and foreigners can buy these using their regular equity trading accounts .  By buying these.India-ADR and GDR  ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals wanting to invest in India.

 WHO CAN ISSUE ADR/GDR?  WHO CANNOT ISSUE ADR/GDR?  END USE RESTRICTIONS  LIMIT OF OFFERINGS  VOTING RIGHTS  PRICING OF ADR/GDR .

Khan -Financial Markets Institutions & Services by N.Indian Financial System by M. Gupta & Monika Chopra -Merchant Banking & Financial Services by Dr S Gurusamy http://www.K.com  www.scribd.com  www.com/doc/19014696/1/DEPOSITORY-RECEIPTS .com  www.Reference   www.businessfinance.Y.com BOOKS .investopedia.google.nasdaq.

GROUP MEMBERS NAME AJAY PRAJAPATI SNEHA TIWARI ROHIT ADANIYA PIYUSH PATEL RAHUL MISHRA YOGITA SURVE ROLL NO 005 088 078 061 072 111 .