Professional Documents
Culture Documents
Depositary Receipts - The Indian Perspective
Depositary Receipts - The Indian Perspective
Course
Bachelor of Commerce (B.Com.)
Year
2007 – 2008
i
DECLARATION
We declare that this project report has been prepared by us, and has
not previously formed the basis for the award of any diploma or
degree.
ii
CERTIFICATE
iii
ACKNOWLEDGEMENT
A lot of effort has gone into the completion of this project. We wish to place on
record our gratitude to the persons who made a contribution to the completion
of this project.
Mr. Sanjay S. Desai, for his never-ending support. We thank him for all his
Our family and friends who supported and encouraged us all the way.
iv
TABLE OF CONTENTS
1 Introduction 1–3
1.1 Introduction 1
1.2 Objectives of the Project 2
1.3 Methodology 3
1.4 Limitations 3
2 Depositary Receipts 4 – 21
2.1 Introduction 4
2.2 American Depositary Receipts (ADR) 5
2.3 Global Depositary Receipts (GDR) 18
v
4 ADR / GDR vs. The Rest 42 - 48
4.1 Foreign Currency Convertible Bonds (FCCB) 42
4.2 Foreign Institutional Investors (FII) 45
4.3 The ADR / GDR Advantage 46
5 Conclusion 49
Press Clippings
Bibliography
vi
LIST OF TABLES, GRAPHS AND PIE CHARTS
List of Tables
No. Table Details Pg. No.
1 List of companies that have issued ADRs 24
List of Graphs
No. Graph Details Pg. No.
1 Funds raised through ADR by companies 25
vii
3a Companies that have raised more than $100 million 32
viii
CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
The world has become flat. In today’s global economy, trade is not restricted to
the boundaries of the country. The world is believed to be one global village. It
is in this very global village that a whole new world of opportunities has arisen
for growth, expansion and diversification.
The Indian economy has assumed the personality of a young zealous, vibrant
person. India opened its gates to the world 17 long years ago. What transpired
ever since can be best described as the most amazing journey. We have been
growing constantly at 8 – 9% ever since. We have become the outsourcing
capital of the world. Just like our population, we are contributing more names
than ever before to Forbes’ Rich List.
On the global scene, India has just arrived. India is an “emerging market”. India
is the future. Our industrialists are buying out big companies – something we
thought would never happen. This liberal and global India has become a
destination for investors from all around the world. India has become a hotbed
for foreign investment.
And it is this foreign investment that has been driving our capital market
upwards into unprecedented territory. The indices of the two largest stock
exchanges in India – the Nifty 50 of the National Stock Exchange (NSE) and
the BSE Sensex of the Bombay Stock Exchange (BSE) – have touched levels of
20,000 and 6,000 points respectively; something solely attributed to the huge
inflow of foreign funds into our capital markets.
To find out the amount of funds collected by Indian companies through the
issue of ADR / GDR.
To identify the reasons why companies raise funds through the issue of ADR
/ GDR.
1.4 LIMITATIONS
Despite our best efforts, this project suffers from certain limitations which were
beyond our control. We have enlisted them as under:
As a result of the topic being a dynamic one, we had to restrict ourselves to
the largely, not wholly, to the internet as a source.
There was a great demand for foreign capital in some of the lesser developed
countries. At the same time, supply of capital was in excess in the countries like
U.S.A. and England. There was a need to bridge this gap and make a channel to
enable the flow of funds from these countries to the ones that required the
funds. Investing without such a channel was a challenge not just financially but
also administratively. The transactions were complicated and settlement of the
transactions in was very difficult owing to currency values.
American Depositary Receipts (ADRs) enable companies to tap into the world’s
largest and most active capital market – the American market. Global
Depositary Receipts (GDRs) give the companies access to European markets
besides the American market.
The companies wishing to issue ADRs have to sign a contract with the financial
institution. The financial institution which issues the ADRs on behalf of the
company is also known as sponsor bank / brokerage or depositary bank. The
contract which is signed by both parties is a comprehensive one. The provisions
of the contract include the number of home – country shares that are on offer,
the ratio of the shares – per – ADR, the voting rights of the U.S. investors and
the tax obligations, among many others.
The voting rights, if any, lie with the depositary bank. The holders of the ADRs
indicate to the depositary bank which way they want to vote. In the absence of
any concrete arrangement, and if it doesn’t violate any U.S. law, the depositary
bank votes as a proxy of the ADR – holder.
This contract is known as the Deposit Agreement. This agreement is the first
step towards raising finance from the United States.
So, for companies whose shares trade at relatively lesser values in the home
country has an ADR that comprise of relatively greater number of shares. For
instance, if a company trading at Rs.40 on the BSE may have an ADR that
comprises of 40 shares, i.e. at a price of $40 per ADR.
Let us recollect our earlier illustration wherein Reliance is going to the U.S.
market to raise capital. Let us assume that Reliance wishes to list on the NYSE
through JP Morgan. JP Morgan fixes a ratio of 10:1, i.e. 1 ADR for every 10
shares of Reliance. Reliance is currently trading at Rs. 300 per share on the
BSE. This equates to $75 per ADR at the fixed ratio. This means that the
investor pays $45 for 10 shares in Reliance. So, after the initial listing, the
Reliance ADR will be bought and sold at prices determined by the market. If
the price of the ADR increases from $75 to $85 per ADR, it implies that 10
shares in Reliance are now worth $85. This translates to Rs. 340 per share as
against the Rs. 300 that Reliance is trading at on the BSE.
Two important factors in the price determination of ADRs are the shares – ADR
ratio and the exchange rate of the home currency. While changes in the ratio are
predetermined, the exchange rate can prove to be extremely volatile. Hence,
there arises an opportunity for arbitrage. With the availability of real – time
news from all across the globe and modern technology that enables on line
transactions, ADR prices of companies have come to follow the trend of the
share prices in the home country.
The issuing company makes use existing shares to raise funds from the
American market. This implies that the company tries to meet investor’s
demand and their own need for liquidity without issuing new shares for the
DEPOSITARY RECEIPTS: THE INDIAN PERSPECTIVE 8
American market. However, they can issue new ADRs. They can do so by
first issuing the shares in the home market and then cancelling it. These
shares are then made available to be bundled and issued.
The issuing company has to register itself with the United States Securities
Exchange Commission through form F-6.
The bid prices of the ADRs are electronically updated at the end of the
trading day through the Pink Sheets LLC information Service. Vendors like
OTCquote.com even post real – time and intra – day quotes posted in the
market. Such services, however, are available to the issuing company only
through subscription.
In order to list your company’s securities, you must meet the listing
requirements of your chosen exchange or market. Your company must also
comply with the registration provisions and continued reporting requirements of
the Securities Exchange Act of 1934, as amended (“The Exchange Act”), as
Form 20-F registration statement, to register the ADRs under the Exchange Act.
This requires detailed financial disclosure from the issuer, including financial
statements and a reconciliation of those statements to US GAAP (Generally
Accepted Accounting Principles).
Annual reports (on Form 20-F) have to be filed on a regular, timely basis with
the US Securities and Exchange Commission (SEC). Interim financial
statements and current developments, furnished on a timely basis to the SEC on
Form 6-K, to the extent such information is made public or filed with an
exchange in the home country or distributed to shareholders.
A Level II ADR uses existing shares to satisfy investor demand and liquidity.
New ADRs are created from deposits of ordinary shares in the issuer’s home
market. Because these securities are listed or quoted on a major US exchange,
Level II ADRs reach a broader universe of potential shareholders and gain
increased visibility through reporting in the financial media. Listed securities
can be promoted and advertised, and may be covered by analysts and the media.
In addition, listed securities can be used to structure incentives for an issuer’s
US employees, or could be used to facilitate US mergers and acquisitions.
Level III ADRs are a public offering of new shares into the US markets. These
capital raisings have a high profile: They are followed closely by the financial
press and other media, often generating significant visibility for the issuer. In
addition to the requirements noted above, an issuing company establishing a
The company may substitute Form 8-A for Form 20-F registration to register
under the Exchange Act. However, Form 20-F annual reports must be filed
thereafter. This annual filing contains detailed financial disclosure from the
issuer, financial statements and a full reconciliation of those statements to US
Generally Accepted Accounting Principles (GAAP).
Level III ADRs can be actively promoted and advertised to increase investor
awareness and market liquidity. As with Level II ADRs, the securities can be
used to structure incentives for an issuer’s US employees, and may be used to
facilitate US mergers and acquisitions.
In short, the Securities Act governs the offer, sale and registration of securities
while the Securities Exchange Act regulates the secondary markets through
mandatory on – going reporting and disclosure by the issuers.
Rule 12g3-2(b)
Under this rule, the ADR – issuer is exempt from periodic disclosure and
reporting norms if it plans to make its Level I ADRs available to the investors
Besides the Depositary Agreement, sponsor banks / brokerages must also file
the legal opinion of their counsel. This legal opinion states the rights that the
holders of these ADRs will have access to.
Once the SEC receives the Form F-6 along with the other documents and has no
further comments, the sponsor bank / brokerage will file an Acceleration
Request with effectiveness on a particular date, on which the ADRs can be
issued. To put it simply, the Acceleration Request filed by the sponsor bank /
brokerage is more like an information slip notifying the SEC about when it
plans to issue the proposed ADRs. This date on which they will issue the ADRs,
is the effectiveness date.
Form 20-F: Annual Disclosure & Registration Document for Level II and III
This form is used as both – a form for registration as well as for annual report
filing. This form can be used for registration only by Level II and Level III
ADR issuers. For sponsor banks / brokerages that have already registered, they
have to use this form to file the annual reports. Depending on the use of this
form, certain exemptions are made available.
EDGAR Filings
The SEC has put in place a system for electronic filing of disclosure documents.
This system is known as EDGAR System, short for Electronic Data Gathering
and Retrieval system. The major purpose of putting such a system in place is to
enable the investors to analyse all the documents filed by the company before
making any investment.
Under the EDGAR System the following forms need to be filed electronically:
• Form F-6 (For registrations of ADRs)
• Form 6-K (For informational reports)
• Form 20-F (For Annual report / registration)
• Forms F-1, F-2, F-3, F-4 (For public offerings)
The regulations regarding filing of these forms are relaxed a little bit for
sponsor bank / brokerage issuing Level I ADRs. However, such relaxation of
regulation does not extend to the filing of Form F-6.
• The company has to get approval from the Ministry of Finance, Government
of India, to make such an issue.
• The company is permitted to enter into any agreement / sign any contract
with foreign agencies provided that such a contract is essential for the issue
of ADRs.
• The companies are allowed to make payments to the relevant authorities and
the sponsor bank / brokerage towards their fees.
• The companies are allowed to maintain bank accounts in the U.S. to deposit
the money collected.
Just as in the case of ADRs, companies wishing to issue GDRs have to sign a
Deposit Agreement with a sponsor bank / brokerage in Europe. GDR holders do
not enjoy any voting rights.
Similar to ADR program, the sponsor bank / brokerage sets a ratio of number of
shares in every GDR. One more significant difference between ADRs and
GDRs is that in case of GDRs, a lot of companies have a ratio of one share per
GDR. This is something that is not found in ADRs. Once the GDRs are listed,
they are traded just like shares on the exchange.
An important point in this regard is that the investors who pick the shares from
London or Luxembourg could be investors from other countries. For example,
an investor from Japan can buy GDRs of an Indian company listed on the
London Stock Exchange. Later on he can sell these GDRs to another investor
from Brazil. This makes the program truly global in the sense that funds can be
raised from different countries at one single point. This is the primary reason for
DEPOSITARY RECEIPTS: THE INDIAN PERSPECTIVE 18
these depositary receipts being christened Global Depositary Receipts and not
British Depositary Receipts.
The GDRs are traded in Europe on one the Euromarket clearing systems –
Euroclear and Clearstream. These clearing systems are similar to the American
National Association of Securities Dealers’ Automated Quotation System
(NASDAQ). These systems offer investors the benefits of real – time prices and
online instant transactions among many other benefits.
2.3.3 Structure
The most significant difference between the ADR and GDR lies in their
structures. There are two types of GDRs – The Reg S Depositary Receipts and
the pairing type.
This type of a GDR is open for every kind of investor. Unlike ADRs, where
each type of ADR determines the investors that can trade it, the Reg S type
GDR can be traded from any kind of investor to any kind of investor.
The biggest reason for such a program being subscribed to is the fact that such a
program enables the issuing company to raise funds not just from the U.S. and
not just from Europe, but from both markets simultaneously.
• The company has to get approval from the Ministry of Finance, Government
of India, to make such an issue.
• The companies are allowed to make payments to the relevant authorities and
the sponsor bank / brokerage towards their fees.
• The companies are allowed to maintain bank accounts abroad to deposit the
money collected through such an issue.
India was totally out of the picture as far as the ADR and GDR markets are
concerned. This is primarily attributed to the protectionist policy followed by
the government. The Indian economy opened up only in 1991 with the
government deciding to adopt the policy of Liberalisation, Privatisation and
Globalisation.
With the opening up of the economy in 1991, Indian companies have been
growing at a rapid pace. With this the economy has also been growing rapidly.
All this has resulted in the opening up of huge opportunities for investment in
India.
The following points highlight the need for / scope of ADRs and GDRs in India:
• Rapid Growth: India’s economy has been growing at a rapid pace. To
maintain the pace of such growth, huge amounts of investments are required.
ADRs and GDRs enable such huge investments to be made in India.
• Non – availability of funds: The funds available in India fall far short of the
funds required to maintain and increase the growth rate of the economy.
ADRs and GDRs channel funds from foreign sources to India, thereby
enabling such investments to be made.
• Bullish Market: The Indian market has been showing bullish tendencies in
the recent past. Indexes of the two major stock exchanges in India – Nifty 50
of the National Stock Exchange (NSE) and BSE Sensex of the Bombay
DEPOSITARY RECEIPTS: THE INDIAN PERSPECTIVE 22
Stock Exchange (BSE) – have been rising upwards consistently in the last
two to three years. This upward trend is both the cause and effect of foreign
funds flowing in.
The Indian ADR market came to life only in 2000 when the Reserve Bank of
India (RBI) announced properly laid out rules and regulations for the issue of
depositary receipts.
The first company to raise funds through the issue of ADR is Rediff.com India
Limited. The company raised $55.3 million or Rs. 2.3 billion ($1= Rs. 43) from
their first issue in 2000. There are 11 companies that have raised $7.9 billion
through 14 programs. Of the 11 companies, 8 are listed on the NYSE and the
other 3 on NASDAQ.
Let has have a look at the total funds raised by each of the companies
mentioned above. The following table lists the companies that have raised funds
through the issue of ADRs
Companies Total Capital Raised Through ADR ($Million)
Dr. Reddy's 362
HDFC Bank 1,080
ICICI Bank 3,359
Infosys 2,489
Rediff 103
Satyam 484
SIFY 44
Table 2: List of companies with funds raised through ADR
Source: Bank of New York
ICICI Bank and HDFC Bank are the only companies that have issued ADRs
three times. HDFC Bank made their issues in 2001, 2005 and 2007. Amongst
the others, all have made two issues except for SIFY.
Note: Data for Tata Motors, Mahanagar Telephone Nagar Limited (MTNL) and Videsh
Sanchar Nigam Limited (VSNL) for use in Graph 1 and Graph 2 was not available.
Earlier, we said that the sponsor bank / brokerage in the U.S. prefers to keep the
raito of shares per ADR high enough to instill confidence in the investors and at
the same time low enough for it to look like an attractive investment. Usually
the ratio is 1:10. But in case of the Indian companies, the range of of the ratio
lies between 1:0.5 to 1:3. This shows not only the financial strength of the
Indian companies, but also the investor’s confidence in Indian stocks.
The following table shows the number of programs having the corresponding
ADR: Shares Ratio.
ADR: Shares Ratio Number of Programs Percentage
1:0.5 2 12.50%
1:1 5 31.25%
1:2 6 37.50%
1:3 3 18.75%
Table 4: Detailed break up of ADR: Shares ratio
Source: Bank of New York
India entered the GDR market soon after the opening up of the economy in
1991. It entered the market with the Reliance issue in May 1992. Reliance
raised $150 million through this issue. This was followed by the Grasim issue
through which the company raised $90 million. Thereafter, there was a lull in
the GDR market until the end of 1993. This was because of the securities scam
that haunted the Indian stock markets during 1992 – 93.
The number of companies that have raised funds through the issue of GDRs is
far greater than the number of companies that have raised funds through ADRs.
Despite this, the total amount raised through GDRs is $7.2 billion.
Videsh Sanchar Nigam Limited (VSNL) raised the largest amount of funds
through the issue of GDRs. It has raised $527 million in this market. The
companies closest to VSNL in terms of funds raised are Reliance, who’ve raised
$450 million and Mahanagar Telecom Nigam Limited (MTNL) who raised
$419 million. From amongst the rest of the companies, SBI has raised $370
million while Tata Motors have raised $319 million. There are a handful of
companies that have raised between $100 - $200 million. Then there’s a big
group of companies who have raised a capital of less than $100 million.
100
Sterlite India
SBI 370
S.A.I.L. 125
450
Reliance
125
Nippon Denro#
MTNL 419
L&T 285
ICICI 230
Hindalco 172
Grasim 190
CESC 125
125
BSES Ltd
125
Arwind Mills
VSNL 527
Graph 3a: Companies that have raised more than $100 million through GDRs
Source: www.gdr.in
United Phos. 55
Tata Electric 65
SPIC 65
Satyam Infoway 75
Sanghi Poly 50
Raymond Woolen 60
Mahindra & Mahindra 75
J.K. Corp 55
ITC 69
IPCL 85
Indian Hotels 86
Indian Alum. 60
Hindustan Dev. 76
Himachal Futuri 50
Guj Ambuja 80
G.N.F.C 61
Finolex Cab 55
Crompton Greaves 50
Core Parent 70
Bombay Dye 50
India Cements 90
0 50 100
Graph 3b: Companies that have raised between $50 - $100 million through GDRs
Source: www.gdr.in
Usha Beltron 35
Tube Invest 46
SIV Ind 45
S.I.E.L. 40
Oriental Hotels 30
NEPC Micon 48
Kesoram Ind 30
JCT Ltd. 45
GAIL 23
Flex Industries 30
EID Parry 40
E. I. Hotels 40
DCW 25
Ballarpur Ind. 35
Dr. Reddy's 48
0 10 20 30 40 50
Graph 3c: Companies that have raised less than $50 million through GDRs
Source: www.gdr.in
The following table shows the number of programs having the corresponding
GDR: Shares Ratio.
The chart shows that the GDR: shares ratio ranges from 1:0.5 to 1:100. This
indicates the presence of different kinds of companies. It indicates the presence
of a large number of big Indian companies and quite a few number of small
companies.
India’s entry into the GDR market dates back to 1992 with Reliance’s $150
million issue. Indian companies were hesitant to enter the ADR market until
2000, when the Reserve Bank of India issued clearly defined guidelines. Apart
from this, there are several other reasons for most Indian companies’ preference
towards the GDR market. They are listed as under:
• Disclosure norms: Companies listed on any of the American stock
exchanges are required to adhere to comprehensive disclosure norms. They
have to disclose information relating not just to the ADR, but also detailed
financial and non – financial information regarding the company. In contrast,
the London Stock Exchange (where all of the Indian companies are listed)
requires disclosure of only that information which relates to GDRs being
issued.
The following table shows the number of companies that have issued ADRs as
against the number of companies that have issued GDRs.
Of the 74 companies that have raised funds through the issue of ADRs and
GDRs, 11 have issued ADRs while the other 63 have issued GDRs. The
following pie chart shows this in terms of percentage of total number of
companies who have raised funds through depositary receipts.
As shown above, an astounding 85.14% of the companies issue GDR for the
various reasons that we listed above. One interesting point worth noting is that
the measures which deter Indian companies from listing in the U.S. affect the
smaller companies in a far greater manner. The companies listed in the U.S. are
the “big boys” of “India Inc.”
The fact that the bigger companies are listed in the U.S. is evident from the
amount of funds raised through these issues. It would be logical to assume that
since 85.14% of the companies have issued GDRs, a near equal percent of funds
would be raised. However, GDRs account for only 47.52% of the funds raised.
The following pie chart shows the amount of funds raised through ADRs and
GDRs as a percentage of the total funds raised.
Pie Chart 4: Funds raised through ADR / GDR as a percentage of the total
Source: Bank of New York and www.gdr.in
Although ADRs account for only 14.86% of the total issue of depositary
receipts, they account for 52.48% of the funds raised. This goes to prove, as we
stated earlier, that the Indian companies issuing ADRs are bigger than the ones
issuing GDRs.
The company that issues FCCBs offers the investor an option to convert his
bonds into equity in the same company. Generally, the company permits such
conversions at predetermined exchange rates and at predetermined prices. Most
of the Indian companies set the conversion rate of these bonds at 10 – 50
percent. The investors can exercise this option only after having stayed invested
in the FCCB for about 1 – 2 years after the issue.
Companies issuing such bonds have a preference towards FCCBs owing to the
equity aspect. This allows the company to reduce its debts by converting these
debts into equity. Further, such a conversion adds value to the company.
The table below shows the amount of funds raised by a few companies through
the issue of FCCBs
FIIs enter the Indian market through the back door. They buy and sell shares
from the exchange and do not directly invest their funds in the operations of
Indian companies. The FIIs have to get themselves registered witht the
Securities and Exchange Board of India (SEBI). SEBI has laid down guidelines
with regards not solely to the quantum of investment, but also the procedures to
be followed prior to such investment.
Recently, FIIs have been permitted to short sell equity in the Indian market
through the notification no. A. P. (DIR Series) Circular No. 23, issued by the
RBI. However, the custodian banks of these FIIs have to report on all
transactions seperately to the RBI for the purpose of monitoring.
FIIs have been pouring in a lot of funds into the Indian markets in the recent
past. In fact, FIIs have been playing a major role in the Indices of the country’s
two major stock exchanges – Nifty 50 of the NSE and BSE Sensex of the BSE.
The recent bullsihness of the Indian markets is attributed to the huge inflow of
funds from the FIIs.
ADRs / GDRs have several benefits to offer to both issuers as well as the
investors. Listed below are the various ways in which the issuers of ADRs /
GDRs stand to gain
Widened Investor Base: With the issue of ADRs / GDRs, Indian companies
can expand their investor base to beyond the borders of the country. Further,
this facilitates the company to divesify their investors.
Increased Liquidity: As in the case of any issue, the issue of ADRs / GDRs
will increase the liquid position of the company. The compay can use these
funds to fuel their expansion plans.
Global Visibilty: Entering the depositary receipts market would result in the
issuing company becoming globally visible. This enables Indian companies
to enhance their reputation not just amongst foreign investors, but also
amongst domestic investors.
Price Parity: Indian companies can compete to be at par with MNCs with
regards to their stock prices. With the issue of ADRs / GDRs, Indian
companies with the MNCs in their own turf.
Facilitates Market Entry: Once a company has got itself recognised and
acepted by the investors, Indian companies can set up shop abroad with far
lesser difficulty. In fact, some of the India companies have issued ADRs /
GDRs not just to raise funds, but also to establish their brand in the country.
In this manner, they can enter foregin market with a lesser risk of failure.
Simple to Trade: Since ADR / GDR is given the same treatment as local
securities, it becomes that much easier and simpler for the investor to trade
in ADRs / GDRs.
Enables Comparison: Owing to the fact that all transactions take place in
their home country, investors can easily compare their investments in ADRs
/ GDRs as against their investments in other local securities. This is also
made possible with the trasactions taking place electronically.
We are now better positioned to conduct a similar research on other topics. The
project has enlightened us with what it takes to actually achieve the goals that
you set. Further, we are better prepared to work in a team.
We have fully understood the concept and the need for a depositary receipts
program. We have identified its significance in India’s growth. We have also
got an insight into the functioning of the American markets along with the
European market.
We have observed that the sudden surge in ADR issues took place after the
government put in place clearly defined rules. Similarly, GDR issues kicked off
immediately after the opening up of the economy. We hope that the RBI can
further relax the ADR / GDR guidelines to enable Indian companies to gain
even greater access to global markets. We also believe that Indian companies
raising funds globally should attempt to make this growth more inclusive.
ADRs and GDRs have proved to be quite a revolution. It wouldn’t be too daring
to dream of a day when we can issue new shares in foreign markets without the
company’s presence in the country.
The new norms will be a breather to companies like SIFY and Rediff.com which
were suppose to list their companies in the domestic market by March 31, 2006.
However, with the new norms, they can go for domestic listing within three years
after they start making profit.
According to new norms, unlisted companies which had issued Foreign Currency
Convertible Bonds (FCCBs), American Depository Receipts (ADRs) and Global
Depository Receipts (GDRs) prior to August 31, 2005 and are not making profit have
been permitted to sponsor ADR/GDRs, against existing shares held by shareholders
in the domestic market and will have to list on the domestic stock exchanges, within
three years of making profit.
However, unlisted companies which have not issued FCCBs, ADRs and GDRs prior
to August 31, 2005 would require prior or simultaneous listing in the domestic stock
exchanges or issues against existing shares under the scheme.
At the same time, unlisted Indian companies can sponsor an issue of ADRs and
GDRs in the international market against shares held by its shareholders provided
such facility would be available pari-passu to all categories of shareholders of the
company whose ADRs and GDRs are being traded in the global market.
(Source: Times of India dt. 29 June 2006)
ix
“Government curtails voting rights of depositaries ”
NEW DELHI: RBI has tightened the voting rights norms in a bank for American
Depository Receipt (ADR) and Global Depository Receipt (GDR) holders through
depositories.
RBI, in a communique to the scheduled commercial banks has asked them not to take
cognizance to voting by depositories, which hold underlying shares of ADRs and
GDRs, if they vote in contravention to its agreement with the banks.
The letter noted that banks enter into an agreement with the depositories, while
issuing shares to them, that they would not exercise voting rights in respect of the
shares held by them or if at all they exercise voting rights, they will do as directed by
the board of directors of banks.
Therefore, now, banks cannot grant voting rights to depositories. Ideally, the RBI
assumed banks were following the practice of not allowing depositories to vote. But
it came to the notice of the RBI that banks issuing ADR/GDR enter into a trust
agreement with the depository granting them the right to vote as directed by the
board of directors of the bank.
x
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Time
Source: Internet
www.adr.com
www.jpmorgan.com
www.gdr.in
www.adr.in
www.investopedia.com
www.thehindubusinessline.com
www.bnymellon.com
www.moneycontrol.com
xi
Source: Other Documentation
JP Morgan Depositary Receipts Guide
Deutsche Bank Depositary Receipts Guide
xii