adr and gdr
DESCRIPTION
ADRs and GDRs in IndiaTRANSCRIPT
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Lokesh Dodani – 32Sunil Gyanchandani – 42
Tripti Kochar – 52Mukul Ahuja – 05
Akshay Aggarwal – 03Manish Mahajan – 59
Ritika Gupta – 41
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Depository ReceiptADR - American Depositary Receipt
An ADR represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets.
Advanced Financial Management 2
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GDR - Global Depositary Receipt
GDR is a certificate issued by a depository bank, which purchases shares of foreign companies.
Advanced Financial Management 3
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ISSUER INVESTOR
Attractive pricing Diversification
No foreign exchange fluctuations
Negotiable instrument free from investment restrictions
Granting ESOPs Investment opportunities & Less obstacles
Less monitoring Trading information and research
Enhances image of company globally.
Prompt dividend payment in dollars
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GDR
Centre – NYSE Disclosure – Requires
Comprehensive Disclosure.
GAAP – Company accounts must be reconciled to US GAAP.
Cost – Comparatively higher.
Retail – US retail market can be accessed.
Liability – Legal liability is more.
Centre – LSE Disclosure – Only
Detailed Information Required.
GAAP – Satisfied with Statement of difference between the A/c Standards.
Cost – Comparatively lower.
Retail – Only QIBs allowed in US.
Liability – Comparatively less than ADR.
Advanced Financial Management 5
ADR
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Lead managerCo-managerOverseas
Depository BanksDomestic
Custodian Bank
Listing agentLegal advisorsPrintersAuditorsUnderwriters
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5Company issues Ordinary Shares
Kept with Domestic Custodian
Transferred to the Overseas Depository Bank
ADR’s /GDR’s are issued by ODB
Receipts given to the foreign investors
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Appoint Listing Agent / Lead manger
Due DiligenceRequired financial
statements
PositioningValuation
Deal Structure
Prepare prospectus Presentation material and Q & A practice
Apply for listing & regulatory approval
through listing agent
Analyst Meeting
Premarketing to Institutions
Road shows & marketing to investors
List on Eurolist , Start trading
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Types of ADRs
Unsponsored Sponsored
Level I Private placementLevel II Level III
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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.
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Initiated by Issuer.
Established jointly by an Issuer and
Depository.
Agreement between Issuer and Depository.
Depository provides shareholders
communication and other information to ADR
holders.
Through Depository ADR holders can exercise
voting rights.
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Level I Level II Level III
Least Expensive More ExpensiveMost Expensive
Minimal SEC registration &reporting requirements.
Full SEC registration & reporting requirements.
SEC reporting is more detailed than Level II.
Cannot be listed on National exchange of US.
Listed on National 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.
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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.
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Fungibility = Interchangeability of any security
One way Two way
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Improvement in Liquidity
Elimination of Arbitrage.
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Dividend will be taxed @10 % All transactions of trading of the GDRs outside
India, among non-resident investors, will be free from any liability of income tax in India.
Capital gains arising on the redemption of shares will be liable to income tax Section 115AC.
Long-term capital gains tax @ 10 % Short-term capital gains tax@ 15 % (Section 195 and 196 of IT Act).
17Advanced Financial Management
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Eligibility of the issuer Eligibility of the subscriber
Approval of Board of Directors
Approval of shareholders
Listing requirements Approval of FIPB
Pricing Reporting requirements of RBI
Issue expenses Companies Act
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Private Sector Banking 74% Drugs & Pharmaceuticals 100%
Non-Banking Financial Companies
100% Road and highways, Ports and harbours
100%
Insurance 26% Hotel & Tourism 100%
Telecommunications Services
74% Mining 74-100%
Petroleum Refining-Private Sector
100% Advertising 100%
Housing and Real Estate 100% Films 100%
Trading 51-100% Airports 74%
Coal & Lignite 50-100% Mass Rapid Transport Systems
100%
Power 100% Pollution Control & Mng. 100%
Air transport Services (no foreign airlines)
100% -NRIs, 49% others
Special Economic Zones 100%
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Advanced Financial Management 20