ADR, GDR & IDR

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DEPOSITORY RECEIPTS Depository receipts are instruments issued by international depositories

(ODB), and they represent an interest in the underlying shares held by them in the issuer company (Indian Company). The shares are usually held by a domestic custodian on behalf of the depositories in turn issue the depository receipts, which entitle the holder of the receipts to get the underlying shares on demand.

DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc.

DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In Indian context, DRs are treated as FDI.

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INTERNATIONAL CAPITAL MARKETINTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKETINTERNATIONAL BOND MARKET

EURO BONDEURO BOND

FOREIGN BOND

FOREIGN BOND ADRADRGDRGDR

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AMERICAN DEPOSITORY RECEIPTS ADR is a dollar-denominated negotiable certificate. It represents a non-US

company’s publicly traded equity. It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets.

ADR were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values.

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Process to Issue ADR/GDR

Issuing Company

(RIL)

Foreign Depository

(Morgan Stanley)

Clearing Agency(Euro Clear)

Foreign Stock Exchange

(NYSE)

GDR/ADR Holders (Bank Of America)

Domestic Custodian bank

(SBI)

Share Certificate

Confirmation

Issue of DR

Payment

Dividend

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Advantages Of ADR/GDR

Can be listed on any of the overseas stock exchanges /OTC/Book entry transfer system.

Freely transferable by non-resident.

They can be redeemed by ODB.

The ODB should request DCB to get the corresponding underlying shares released in favor of non resident of investors. (Shareholders of issuing companies).

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Types of ADR

SPONSORED ADR UNSPONSORED ADR

Issued with cooperation of the company whose stock will underlie the ADR

Issued by – broker/dealer or depository bank without the involvement of company whose stock underlies the ADR

Comply with regulatory reporting. No regulatory reporting

Listing on international Stock Exchanges allowed.

Trade on OTC market

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Levels of ADR

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Level 1 ADRs:

Level 1 ADRs are the lowest level of sponsored ADRs and also the simplest method for companies to access the US capital markets.

Level 1 ADRs are traded in the over-the –counter (OTC) market.

The issuing company does not have to comply with US generally accepted accounting principles (GAAP) or provide US Securities and Exchange Commission (SEC) disclosure.

Level 1 ADRs essentially enable a company to obtain the benefits of a US publicly traded security without altering their current reporting process.

Companies that have level 1 ADRs may upgrade to level II or level III ADR program.

They require minimal SEC registration.

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Level II ADRs:

Level II ADRs enable companies to list their ADRs on Nasdaq, the American Stock Exchange, the New York Stock Exchange and the OTC bulletin board, thereby offering higher visibility in the US market, more active trading and greater liquidity.

Level II ADRs require full registration with the Securities and Exchange Commission. Companies must also meet the requirements of the appropriate stock exchange.

Level II ADRs require a form 20-F and form F-6 to be filled with the SEC, as well as meeting the listing requirements and filing a listing application with the designated stock exchange. Upon F-6 effectiveness and approval of the listing application, the ADRs begin trading.

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Level III ADRs:

level III ADRs enable companies to list their ADRs on Nasdaq, the Amex, the NYSE or the OTC Bulletin Board and make a simultaneous public offering of ADRs in the united states

The benefits of level III ADRs are substantial; it allows the issuer to raise capital and leads to much greater visibility in the U.S market.

Level III ADR programs must comply with various SEC rules, including the full registration and reporting requirements of the SEC's Exchange Act.

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Pricing of ADR/GDR

Should not be less than higher of the two following

Avg weekly (high & low) closing prices in the last six months.

Avg weekly (high & low) closing prices in the last two weeks.

Issue related expenses: should not exceed

4%--- in case of GDR

7%----in case of ADR

2%----Private placement of ADR’s/GDR’s.

There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.

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Trading Depositary Receipts

Source: Depositary receipts information guide; CITIGROUP

BUYING

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India's STERLITE INDUSTRIES LTD

Raised $1.75 billion ADSs that were offered: 130,440,000 ADSs Offering price: $13.44 per ADS Underwriters: Merrill Lynch, Fenner & Smith Inc, Morgan Stanley & co. intl plc,

and Citigroup, Global markets Inc Depositary for the ADS: Citibank, N.A. Total expenses of the offering excluding Underwriting discounts & commissions: $ 9.0 million Registration fees: $ 0.1 million Printing fees: $1.6 million Estimated legal fees: $ 2.5 million Accounting fees: $2.0 million Note: - Underwriters pay for their own legal fees

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GLOBAL DEPOSITORY RECEIPTS

A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches.

A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros.

The voting rights of the shares are exercised by the Depository as per the understanding between the issuing company and the GDR holders.

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Types of GDR Rule 144A GDRs

Rule 144A GDRs are privately placed depositary receipts which are issued and traded in accordance with Rule 144A.  This rule was introduced by the SEC in April 1990 in part to stimulate capital raising in the US by non-US issuers.

Non-US companies now have ready access to the US equity private placement market and may thus raise capital through the issue of Rule 144A GDRs without complying with the stringent SEC registration and reporting requirements.

Regulation S With the global integration of the major securities markets, it is now

commonplace to have fungible securities listed and cleared in more than one market.

Just as ADRs allow non-US issuers to access the important US market, GDRs allow issuers to tap the European markets.

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Difference Between ADR & GDR

ADR GDR

American depository receipt (ADR) is compulsory for non –us companies to trade in stock market of USA.

Global depository receipt (GDR) is compulsory for foreign company to access in any other country’s share market for dealing in stock.

ADRs can get from level 1 to level III. GDRs are already equal to high preference receipt of level II and level III.

ADRs up to level –I need to accept only general condition of SEC of USA.

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA .

ADR is only negotiable in USA . GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities .

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Which INDIAN companies have ADR & GDR

COMPANY ADR GDR

Bajaj Auto No YES

Dr Reddy’s YES YES

HDFC Bank YES YES

ICICI bank YES YES

ITC NO YES

L&T NO YES

MTNL YES YES

HINDALCO NO YES

INFOSYS TECHNOLOGIES YES YES

TATA MOTORS YES NO

PATNI COMPUTERS YES NO

SBI NO YES

WIPRO YES YES

VSNL YES YES

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INDIAN DEPOSITORY RECEIPTS

These are financial instrument that allows foreign companies to mobilize funds from Indian capital market.

IDRs are the depository receipts dominated by Indian ₹ issued by the domestic depository receipt.

Represents interest in the share of non-Indian company’s equity.

Like equity shares, these are unsecured instruments & negotiable from one to another investors.

It provides chance to Indian investors to hold equity shares of foreign company’s.

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Who can Invest?

Any person who is resident in India as defined under FEMA.

NRIs.

SEBI registered foreign institutional investor including their sub

accounts.

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Intermediaries involved in issuance of IDR

Overseas custodian

Domestic depository

Merchant banker

Registrar and transfer agent

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Eligibility CriteriaAs per the companies IDR rules

Criteria Requirements

Capital Pre issue paid up capital and free reserve are at least US$ 50 million.

Market capitalization Minimum average market capitalization (during the last 3 years) in its parent country of at least US$ 100 million.

Operation history Continuous trading record or history on a stock exchange in its parent country at least 3 immediately preceding years.

Track record of distributable profits

Track record of distributable profits in terms of section 205 of the companies act. 1956 for at least 3 out of immediately preceding 5 years.

Other requirements Fulfil such other eligibility criteria as may be laid down by SEBI from time to time in this behalf.

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Allocation of the Issues

Minimum 50% of the issue should be allotted qualified institutional buyers (QIB).

30% of the issue should be offered to retail individual investors (RIB) including employees.

Balance 20% to be appointed between Non-institutional investors (NII).

Issue Size- Issue shall not be less then ₹50crore.

Minimum application amount- Shall be ₹20,000.

Extent of issue- The no. of underlying issue shares offered in a financial year through IDR offering shall not exceeds 25% of the post issue no. of equity share of the company.

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Limits of Investment

RII- Minimum of ₹20,000 of and maximum of ₹1,00,000.

NII- Above ₹1,00,000 and up to the issue size

QIB-Above ₹1,00,000 and up to the issue size.

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Procedures

Pre- listing

Offering process

Eligibility criteria & public offering

Listing on stock Exchange

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Benefits to the Key Stack Holders

Issuing companies.

Investors.

Employees.

Regulators.

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THANK YOU

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