ADR & GDR Presented By manish gupta 2nd yr. student PGPBM Finance (2009-2011) Kohinoor business school, khandala, pune

Depository Receipts (DR)  Is a type of negotiable instrument (transferable) financial security.  allows investors to hold shares in equity of other countries.

What is ADR ? •

Domestic Stock Exchange

U.S certificate ADR

ADR- American Depositary Receipts • ADR is a negotiable US certificate ownership of shares in an non-US corporation. It is quoted and traded in US dollars in US securities market and dividends are paid to investors in US dollars. • ADR is specifically designed to facilitate purchase, holding and sale of non-US securities by US investor and to provide corporate finance vehicle for non-US companies.

ADR RECEIPT

Some more points about ADRs • ADRs were first introduced in 1927. • The stock of many non-US companies, trade on US exchanges through the use of ADRs. • ADRs enable US investors to buy shares in foreign companies without undertaking crossborder transactions. • The shares of the non-US corporation trade on a non-US exchange, while the ADRs trade on a US exchange.

ADR Ratio • Single 1 ADR = 1 SHARE

ADR Ratio = 1:1 • Multiple 1 ADR = 5 SHARES ADR Ratio = 1:5 • Fraction 1 ADR = ½ SHARE

ADR Ratio = 2:1

How does ADR/GDR work ? • Suppose price of Infosys share in stock market is around Rs. 2000. • Lets $1= Rs 40, assume for simplicity. • Then US bank purchase 10000 shares of Infosys , and issued ADR at ratio of 10:1. • It means 1 ADR= 10 shares, 1 ADR= Rs 400.

ADR TYPES of ADR : • Unsponsored ADR • Sponsored ADR  Level 1  Level 2  Level 3

ADR listing : NASDAQ AMEX NYSE

Benefits of ADR • TO COMPANIES:

 Broadening and diversifying a company US’s investor base.  Enhancing company visibility, status and profile in the US and internationally among investors.  Offers a new source of raising equity capital, often at highly competitive rates.

Benefits of ADR contd……. • TO INVESTORS:

 Convenient to purchase and hold a non-US issuer securities.  Opportunities to invest and earn in US Dollars.

 Diversifying portfolio.  Invest in high growth economies.

Disadvantages of ADR • ADR cannot be exchanged with its home market security.

Participants in ADR Market

Depository

Brokers

ants

Investment Banker

Issuer

Custodian

Lawyers

Investment Relations Firm

GDR – Global Depositary Receipts • A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country.

• To raise money in more than one market, some corporations use GDRs to sell their stock on markets in countries other than the one where they have their headquarters.

Objective of GDR • Enable investors in diversifying their funds in international securities.

Factors effecting GDRs prices: • company track record • analysts recommendations • market conditions • international status of the company

GDR Listing • • • • •

London Stock Exchange Luxembourg Stock Exchange DIFX Singapore Exchange Hong Kong Exchange

Advantages of GDRs • Shareholder wealth maximization. • allow investors to invest in foreign companies without worrying about foreign trading practices, laws.

Disadvantage of GDRs: • GDR have foreign exchange risk i.e. currency of issuer is different from currency of GDR.

India- ADR and GDR • ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals wanting to invest in India.

• By buying these, 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 s.

Indian Companies using ADR/GDR • Some of them are: • • • • • • • • •

Bajaj Auto Dr. Reddy’s HDFC Bank. Hindalco. ICICI Bank Infosys ITC L&T Wipro

References • • • • •

www.google.com www.wikipedia.com www.investopedia.com www.businessfinance.com www.icai.org