ADR GDR IDR 2003
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ADR, GDR & IDRSubject: DerivativesPresented By: Sanket Advilkar Amey Bhagat Amit Mittal Jerin John Rupali Indap
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Depository Receipts It is a type of negotiable (transferable) financial security It is usually in the form of equity, which is issued by a foreign publicly listed company It is a Physical Certificate It allows investors to hold shares in equity of other countries
Major Players in DR
Corporate Issuer Register & Transfer Agent Overseas Custodian Domestic Depository DR Holder
Process of Issuing DRCompany Issues Ordinary Shares
Kept with Domestic Custodian
Transferred to Overseas Depository Bank
DRs are issued by ODB
Receipts Given to the Foreign Investors
AMERICAN DEPOSITORY RECEIPT (ADR)
What is ADR ? An ADR represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets ADRs 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 first introduced in year 1927 ADRs are traded on NYSE, NASDAQ & AMEX in USA
Types of ADRLevel I Unsponsored Types of ADRs Sponsored Level III Private Placement Level II
Unsponsored ADRs Created in response of investors, brokers - dealers and depository Exempted from reporting requirements of the SEC Not Listed on any exchange Advantages: Inexpensive Expands investors base Minimal SEC compliance and reporting requirements Disadvantages: No control over the activity Conversion becomes costly
Sponsored ADRs Initiated by Issuer Established jointly by an Issuer and Depository Depository provides shareholders communication and other information to ADR holders Through Depository ADR holders can exercise voting rights
Level ILeast Expensive
Level IIMore Expensive
Level IIIMost Expensive
Minimal SEC registration & reporting requirements.
Full SEC registration & reporting requirements.
SEC reporting is more detailed than Level II.
Cannot be listed on Listed on National National exchange of US. exchange of US.
Listed on National exchange of US.
Capital Raising is not permitted.
Capital Raising is not permitted.
Capital can be raised through Public offering.
Private Placements Capital can be raised by placing Depositary Receipts with large institutional investors Do not have to conform full SEC reporting and registration requirements Cheaper means of raising equity capital
Can only be sold to QIBs
GLOBAL DEPOSITORY RECEIPTS (GDR)
What is GDR ? GDR is a certificate issued by a depository bank, which purchases shares of foreign companies GDR can be traded globally in exchange or over the counter market & it is a global funding vehicle for raising capital
Normally 1 GDR = 10 Shares GDR does not provide voting rights Biggest Asian GDR was issued by SBI in 1997 for US $ 350 million
Process of GDR
GDR Listing London Stock Exchange Luxembourg Stock Exchange Dubai International Financial Exchange (DIFX) Singapore Exchange Hong Kong Exchange
GDR: Advantages & Disadvantages Allow investors to invest in foreign companies without worrying about foreign trading practices & laws 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 Provides the Issuer more larger and diverse shareholder base and the ability to raise more capital in international markets However, they have foreign exchange risk i.e. currency of issuer is different from currency of GDR
Indian Companies Issuing GDR Bajaj Auto Dr. Reddys HDFC Bank Hindalco ICICI Bank Infosys Technologies ITCL&T MTNL Reliance Industries State Bank of India VSNL Wirpo TATA Motors
ComparisonADRCentre NYSEGAAP Company accounts must be reconciled to US GAAP
GDRCentre LSEGAAP Satisfied with Statement of difference between the A/c Standards Cost Comparatively lower Retail Only QIBs allowed in US Liability Comparatively less than ADR
Cost Comparatively higherRetail US retail market can be accessed Liability Legal liability is more
INDIAN DEPOSITORY RECEIPT (IDR)
What is IDR ? IDRs are depository receipts denominated in Indian Rupees issued by a Domestic Depository in India The US $ 200,000 limit is not applicable for an investment in IDRs An IDR holder will be entitled to rights on an equitable basis vis--vis the rights of shareholders of the issuer company in its home country. Fungibility: Reverse fungibility is not allowed
Process of IDRShares
Issuer (Outside India)
Issuer of IDRs to Investors in India
Domestic Depository (in India)
Holds Shares for Domestic Depository
Custodian (Outside India)
IDRs listed on IDR Holders FIIs, NRIs, FIs, Retail, Non- NSE / BSE Institutional Investors
Who Can Invest? Retail Individual Investors (incl NRIs) Non-Institutional Investors (NIIs) (incl NRIs) Qualified Institutional Buyers (QIBs) Scheduled commercial banks Mutual Funds Foreign Institutional Investors Indian Institutional investors except Insurance companies, venture capital fundsRetail Individual Investors 30%
Indias First Ever IDR: Stan Chart Raised Rs. 2490 crore ($530) million through issue of 24 crore IDRs Initial issue price was Rs. 104 but it was listed at Rs 106, exceeded expectations by Rs 2 on the NSE It was subscribed 1.38 times Every 10 IDR = 1 share of SC