Presented by :

Vijay Mehta

AMERICAN DEPOSITORY RECEIPTS

Type of negotiable (transferable) financial security.

Traded on a local stock exchange.

Physical certificate allowing investors to hold shares

in equity of other countries.

For the Company

1. Raise capital from foreign markets.

2. Increases the share liquidity.

For the Investor

1. Investors gain the benefits of diversification.

2. Investors will be able to reap the benefits of foreign (emerging) markets.

brokers

depositary

Custodian

Issuer

Investment banker

lawyers

Accountants

The first ADR was introduced by J.P. Morgan in 1927

for the British retailer Selfridges.

Shares of many non-US companies trade on US stock

exchanges.

ADRs are denominated and pay dividends in US

dollars and may be traded like regular shares of stock.

Sponsored ADR program

INVESTOR

US EXCHANG

E

BROKE/

DEALER

• Under the sponsored program there are 3 levels and they are ;

• Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent.

• Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission [SEC]

• Level 2 depositary receipt programs are more complicated for a foreign company. When a foreign company wants to set up a Level 2 program, it must file a registration statement with the U.S. SEC and is under SEC regulation.

• The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX).

• A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. companies.

• Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital

Unsponsored Programme:

• Unsponsored shares trade on the over-the- counter (OTC) market

• Unsponsored ADRs are often issued by more than one depositary bank

Restricted Programme

Foreign companies that want their stock to be limited to being traded by only certain individuals may set up a restricted program

ADR programs operating under one of these 2 rules make up approximately 30% of all issued ADRs

Privately placed (SEC Rule 144A) ADRs

ADR program under SEC Rule 144A

 private placement

 restricted stock and may only be issued to or traded by Qualified Institutional Buyers (QIBs)

Offshore (SEC Regulation S) ADRs

 SEC Regulation S

Shares are not, and will not be registered with any United States securities regulation authority

The shares are registered and issued to offshore, non-US residents

Certificate issued by a depository bank, which purchases shares of foreign companies.

Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York.

GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange.

Co/- deposits large no of

shares located in country

where it wants to list.

Co/- deposits large no of

shares located in country

where it wants to list.

The bank then issues receipts underlying the shares (2-4)

The bank then issues receipts underlying the shares (2-4)

Behaves exactly like

regular stocks- price

fluctuation according to demand &

supply

Behaves exactly like

regular stocks- price

fluctuation according to demand &

supply

Is receipts are sold to people of that country

Is receipts are sold to people of that country

This receipt is then listed on

local stock exchanges.

This receipt is then listed on

local stock exchanges.

London Stock Exchange

Luxembourg Stock Exchange

Dubai International Financial Exchange (DIFX)

Singapore Stock Exchange

Hong Kong Stock Exchange

Company ADR GDR

Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes Yes

Hindalco No Yes

ICICI Bank Yes Yes

Infosys Technologies Yes Yes

ITC No Yes

L&T No Yes

MTNL Yes Yes

Patni Computers Yes No

Ranbaxy Laboratories No Yes

Tata Motors Yes No

State Bank of India No Yes

VSNL Yes Yes

WIPRO Yes Yes

F D I Foreign Direct

Investment

FDI means investment by non-resident entity/person resident

outside India in the capital of an Indian company

They are made by a company or entity based in one country, into

a company or entity based in another country.

Companies invest in foreign countries:

To gain control over the market

To increase its sales

To reduce its costs

To acquire technological and managerial know-

how

To establish control of managerial decision

making via investment in equity share capital

Purchase of existing assets in a foreign country.

New investment in property, plant, equipment.

Participation in a joint venture with a local

partner.

Transfer of many types of assets like human

resources, systems, technical know-how in

exchange for equity in foreign companies.

Through trading in equity.

Domestic capital is generally inadequate for the purpose of economic growth

FDI brings with it human and technological expertise

Increases a firms global competitiveness

Profitable both for the country receiving the investment and the investor

SUPPLY Factors:

Production Costs

Logistics

Availability of Natural Resources

Availability of Human Resources at low cost

Access to key technology

DEMAND Factors:

Customer Access

Marketing Mobility

Exploitation of Competitive Advantages

POLITICAL Factors:

Avoidance of Trade Barriers

Economic Development Incentives

No need of Government Approval

Only regional RBI office has to be informed

Investment upto the prescribed sectoral limit

Requires prior Approval of the Government

Proposals either to FIPB or DIPP

Investment upto the prescribed sectoral limit

Prohibited Sectors Lottery Business Gambling and Betting including Casinos Chit Funds Manufacturing of Cigars, cigarettes, tobacco or

tobacco substitutes Activities / sectors not open to private sector

investment e.g. Atomic Energy and Railway Transport

Permitted Sectors

Sector % of FDI Cap Entry Route

Pharmaceuticals 100% Government

NBFC 100% Automatic

Insurance 26% Automatic

Banking – Public Sector 20% Government

Banking – Private Sector

74% Automatic upto 49%

Government beyond 49-74%

E-Commerce Activities 100% Automatic

Telecom Services 74% Automatic upto 49%

Government beyond 49-74%

Construction Development

100% Automatic

Integration into global economy Economic growth Trade Technology diffusion and knowledge transfer Increased competition Human Resources Development Employment