ADR GDR IDR

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ADR, GDR & IDR 1

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BAsics of ADR GDR IDR

Transcript of ADR GDR IDR

  • 1. ADR, GDR & IDR1

2. DEPOSITORY RECEIPTS2 Depository receipts are instruments issued by international depositories (ODB),and they represent an interest in the underlying shares held by them in theissuer company (Indian Company). The shares are usually held by a domesticcustodian on behalf of the depositories in turn issue the depository receipts,which entitle the holder of the receipts to get the underlying shares ondemand. 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 DepositoryReceipts (GDRs). In Indian context, DRs are treated as FDI. 3. ININTTEERRNNAATTIOIONNAALL C CAAPPITITAALL M MAARRKKEETTININTTEERRNNAATTIOIONNAALL B BOONNDD M MAARRKKEETT ININTTEERRNNAATTIOIONNAALL E EQQUUITITYY M MAARRKKEETTEUROBONDEUROBONDFOREIGNBOND GGDDRR AADDRRFOREIGNBOND3 4. AMERICAN DEPOSITORY RECEIPTS4 ADR is a dollar-denominated negotiable certificate. It represents a non-UScompanys publicly traded equity. It was devised in the late 1920s to helpAmericans invest in overseas securities and to assist non-US companies wishingto have their stock traded in the American Markets. ADR were introduced as a result of the complexities involved in buying sharesin foreign countries and the difficulties associated with trading at differentprices and currency values. 5. Process to Issue ADR/GDRIssuing Company(RIL)ForeignDepository(Morgan Stanley)Clearing Agency(Euro Clear)DomesticCustodian bank(SBI)GDR/ADR Holders(Bank Of America)Foreign StockExchange(NYSE)ShareCertificateConfirmationIssue of DRPaymentDividend5 6. Advantages Of ADR/GDR6 Can be listed on any of the overseas stock exchanges /OTC/Book entrytransfer system. Freely transferable by non-resident. They can be redeemed by ODB. The ODB should request DCB to get the corresponding underlying sharesreleased in favor of non resident of investors. (Shareholders of issuingcompanies). 7. Types of ADRSPONSORED ADR UNSPONSORED ADRIssued with cooperation of thecompany whose stock will underlie theADRIssued by broker/dealer or depositorybank without the involvement ofcompany whose stock underlies theADRComply with regulatory reporting. No regulatory reportingListing on internationalStock Exchanges allowed.Trade on OTC market7 8. Levels of ADR8 9. Level 1 ADRs:9 Level 1 ADRs are the lowest level of sponsored ADRs and also the simplestmethod 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 acceptedaccounting principles (GAAP) or provide US Securities and ExchangeCommission (SEC) disclosure. Level 1 ADRs essentially enable a company to obtain the benefits of a USpublicly traded security without altering their current reporting process. Companies that have level 1 ADRs may upgrade to level II or level III ADRprogram. They require minimal SEC registration. 10. Level II ADRs:10 Level II ADRs enable companies to list their ADRs on Nasdaq, the AmericanStock Exchange, the New York Stock Exchange and the OTC bulletin board,thereby offering higher visibility in the US market, more active trading andgreater liquidity. Level II ADRs require full registration with the Securities and ExchangeCommission. Companies must also meet the requirements of theappropriate stock exchange. Level II ADRs require a form 20-F and form F-6 to be filled with the SEC, as wellas meeting the listing requirements and filing a listing application with thedesignated stock exchange. Upon F-6 effectiveness and approval of thelisting application, the ADRs begin trading. 11. Level III ADRs:11 level III ADRs enable companies to list their ADRs on Nasdaq, the Amex, theNYSE or the OTC Bulletin Board and make a simultaneous public offering ofADRs in the united states The benefits of level III ADRs are substantial; it allows the issuer to raise capitaland leads to much greater visibility in the U.S market. Level III ADR programs must comply with various SEC rules, including the fullregistration and reporting requirements of the SEC's Exchange Act. 12. Pricing of ADR/GDR12 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 ADRs/GDRs. There are no end-use restrictions on GDR/ADR issue proceeds, except for anexpress ban on investment in real estate and stock markets. 13. Trading Depositary ReceiptsBUYINGSource: Depositary receipts information guide; CITIGROUP13 14. 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, andCitigroup, 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 fees14 15. GLOBAL DEPOSITORY RECEIPTS15 A bank certificate issued in more than one country for shares in a foreigncompany. The shares are held by a foreign branch of an internationalbank. The shares trade as domestic shares, but are offered for sale globallythrough the various bank branches. A financial instrument used by private markets to raise capitaldenominated in either U.S. dollars or Euros. The voting rights of the shares are exercised by the Depository as per theunderstanding between the issuing company and the GDR holders. 16. Types of GDR Rule 144A GDRs16 Rule 144A GDRs are privately placed depositary receipts which are issued andtraded in accordance with Rule 144A. This rule was introduced by the SEC in April1990 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 placementmarket and may thus raise capital through the issue of Rule 144A GDRs withoutcomplying with the stringent SEC registration and reporting requirements. Regulation S With the global integration of the major securities markets, it is now commonplaceto 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 allowissuers to tap the European markets. 17. Difference Between ADR & GDRADR GDRAmerican depository receipt (ADR) iscompulsory for non us companies to tradein stock market of USA.17Global depository receipt (GDR) iscompulsory for foreign company to accessin any other countrys share market fordealing in stock.ADRs can get from level 1 to level III. GDRs are already equal to high preferencereceipt of level II and level III.ADRs up to level I need to accept onlygeneral condition of SEC of USA.GDRs can only be issued under rule 144 Aafter accepting strict rules of SEC of USA .ADR is only negotiable in USA . GDR is negotiable instrument all over theworldInvestors of USA can buy ADRs from Newyork stock exchange (NYSE) or NASDAQInvestors of UK can buy GDRs from London stockexchange and luxemberg stock exchange andinvest in Indian companies without any extraresponsibilities . 18. Which INDIAN companies haveADR & GDRCOMPANY ADR GDRBajaj Auto No YESDr Reddys YES YESHDFC Bank YES YESICICI bank YES YESITC NO YESL&T NO YESMTNL YES YESHINDALCO NO YESINFOSYS TECHNOLOGIES YES YESTATA MOTORS YES NOPATNI COMPUTERS YES NOSBI NO YESWIPRO YES YESVSNL YES YES18 19. INDIAN DEPOSITORY RECEIPTS19 These are financial instrument that allows foreign companies to mobilize funds fromIndian capital market. IDRs are the depository receipts dominated by Indian issued by the domesticdepository receipt. Represents interest in the share of non-Indian companys equity. Like equity shares, these are unsecured instruments & negotiable from one toanother investors. It provides chance to Indian investors to hold equity shares of foreign companys. 20. Who can Invest? Any person who is resident in India as defined under FEMA. NRIs. SEBI registered foreign institutional investor including their sub accounts.20 21. Intermediaries involved in issuanceof IDR Overseas custodian Domestic depository Merchant banker Registrar and transfer agent21 22. Eligibility CriteriaAs per the companies IDR rulesCriteria RequirementsCapital Pre issue paid up capital and free reserve are at least US$ 50million.Market capitalization Minimum average market capitalization (during the last 3 years) inits parent country of at least US$ 100 million.Operation history Continuous trading record or history on a stock exchange in itsparent country at least 3 immediately preceding years.Track record ofdistributable profitsTrack record of distributable profits in terms of section 205 of thecompanies act. 1956 for at least 3 out of immediately preceding 5years.Other requirements Fulfil such other eligibility criteria as may be laid down by SEBI fromtime to time in this behalf.22 23. 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) includingemployees. 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 IDRoffering shall not exceeds 25% of the post issue no. of equity share of the company.23 24. 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.24 25. ProceduresPre- listingOffering processEligibility criteria & public offeringListing on stock Exchange25 26. Benefits to the Key Stack Holders Issuing companies. Investors. Employees. Regulators.26 27. THANK YOU27