Guidelines for the issue of ADRs and GDRs by the

Indian Companies
A Report

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF

COMPONENT 2

PGPM
(1ST Year,1ST Sem)

SUBMITTED TO
Prof. Prapti Paul
FINANCIAL MANAGEMENT, IBS, GURGAON
SUBMITTED BY

Name Students Name: Enrollment No.:

Kritik Mittal 21BSP0872

Mayank Singh 21BSP0893

20TH JULY 2021

ICFAI Business School (IBS) - Gurgaon

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 ABSTRACT

This report is prepared for to addresses following research issues in context of foreign
listings by the Indian companies and guidelines for the issue ADR’S & GDR’S by the Indian
companies. The trend towards the internationalization of financial markets has gained impetus during
the last two decades, driven mainly by the sophistication in IT and capital market participants
(borrowers, investors and financial intermediaries), greater co-operation between financial regulators,
the lowering of capital barriers across national boundaries and the liberalization of capital markets in
emerging economies.
Indian companies are prohibited from directly issuing rupee denominated securities which
can be listed abroad on foreign stock exchanges. Thus, the equity shares of an Indian company cannot
be directly listed on, say, the New York Stock Exchange and other global market stock exchange. To
overcome this problem, Indian companies adopt the ADR/ GDR route. In this report we come to know
that what is process of issuing ADR & GDR, advantage and disadvantage of ADR & GDR, and
guidelines for the issue of ADR & GDR by the Indian company.

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 TABLE OF CONTENTS

S No. Content Page no.

1 Depositary Receipt 4-5

i. Depositary Receipt
ii. Types of Depositary Receipt
iii. Reasons for issuing ADRs/GDRs
iv. Advantages and Disadvantages
2 American Depositary Receipt 6-7
i. American depositary receipt
ii. Process of issue ADRs
iii. How are ADRs created?
iv. Pros and Cons of American depositary receipt
v. Types of American Depositary Receipt
3 List of ADRs issued by Indian Companies 8
4 Global Depositary Receipt 9-10
i. Global Depositary Receipt
ii. PROCESS OF ISSUING GDRs
iii. How are GDRs created?
iv. Pros and Cons of Global Depositary Receipt
v. Types of Global Depositary Receipt
5 List of GDRs issued by Indian Companies 10
6 RBI guideline for issue of ADR & GDR 11-13

Depositary Receipt (DR)

Depositary receipt: -

 A depositary receipt (DR) is a negotiable certificate issued by a bank representing shares in a

foreign company traded on a local stock exchange.

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  DR gives investors the opportunity to hold shares in the equity of foreign countries and gives
them an alternative to trading on an international market.
 DR allow investors to diversify their portfolios by purchasing shares of companies in different
markets and economies.
 DR are more convenient and less expensive than purchasing stocks directly in foreign market.

TYPES OF DEPOSITARY RECEIPT: -

Reason for issuing ADRs/GDRs: -

Indian companies are prohibited from directly issuing rupee denominated securities which can be listed
abroad on foreign stock exchanges. Thus, the equity shares of an Indian company cannot be directly
listed on, say, the New York Stock Exchange. To overcome this problem, Indian companies adopt the
ADR/ GDR route

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ADVANTAGES AND DISADVANTAGES OF DEPOSITARY RECEIPTS: -
Advantages: -

1. Exposure to international securities.

2. Additional sources of capital.
3. Less international regulation.

Disadvantages: -
1. Higher administrative and processing fees, and taxes
2. Greater risk from forex exchange rate fluctuations.
3. Limited access for most investors.

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 AMERICAN DEPOSITARY RECEIPT
American depositary receipt: -

 An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depositary

bank representing a specified number of shares (often one share) of a foreign company’s stock.

 The ADR trades on American stock exchange.

 ADRs and their dividends are priced in U.S. dollars.
 ADRs represent an easy, liquid way for U.S. investors to own foreign stocks.

Process of issue ADRs: -

i. The Indian company would issue rupee-denominated equity shares to a depository based in America.

ii. A custodian in India would keep these shares in its custody.

iii. The depository would issue dollar-denominated receipts or shares to foreign investors, known as ADRs/
ADSs. It would also set the ratio between the ADRs and the equity shares, i.e., one ADR is equal to how
many equity shares. It could be one, more or less than one equity share. It all depends upon the pricing
of the share in the Indian market. The objective is to so price the ADR that it does not become very
expensive and out of reach for the retail foreign investors.
iv. A public issue would be made of the ADRs in USA and elsewhere. The investment bankers would
organize road shows and try and market the issue to institutional and retail foreign investors. The book
building method is used for the issue.
v. The ADRs would be listed on a US stock exchange, e.g., Nasdaq or New Stock Exchange.

vi. Foreign exchange fluctuation risk or gain is to the account of the foreign investors.

vii. For the company there is no burden of repayment or interest.

viii. The company would pay dividend to the depository in rupee terms but the depository would distribute
this dividend to the ADR holders in dollars.
ix. For the investors their point of contact would be the depository.

x. The Indian company would need to comply with the SEC requirements in terms of compliance and
accounting norms, such as US GAAP. ADRs/ GDRs 51
xi. The ADR holders may exercise their right to vote through the overseas depository bank

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How are ADRs created?

 Indian companies cannot directly list their equity shares on the international stock exchange. so,
in order to overcome this problem, the companies give shares to an American bank.
 These banks will take hold of the stock, and issue receipts to Indian companies in return.
 The companies raise funds by providing those ADR receipts in American share market. These
ADRs are listed on the major stock exchanges of the US, like NASDAQ. They can also be sold
Over-The-Counter (OTC).

PRO’S AND CON’S OF AMERICAN DEPOSITARY RECEIPT: -

PROS
1) Easy to track and trade.
2) Denominated in dollars.
3) Available through U.S. brokers.
4) Offer portfolio diversification.
CONS
1) Could face double taxation.
2) Limited selection of companies.
3) Unsponsored ADRs may not be SEC-compliant.
4) Investor’s may incur currency conversion fees.

Types of American Depositary Receipt: -

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List of ADRs issued by Indian Companies: -
DR Listing
COMPANY Type Date of Issue
Exchange

DR REDDYS LABORATORIES LTD NYSE Sponsored 4/12/2021

HDFC BANK LTD NYSE Sponsored 1/20/2001

INFOSYS TECH. LTD NASDAQ Sponsored 3/16/1999

ICICI BANK LTD NYSE Sponsored 3/31/2000

MAHANAGAR TELEPHONE NIGAM NYSE Sponsored 9/28/2001

TATA MOTORS LTD NYSE Sponsored 9/27/2004

WIPRO LTD
NYSE Sponsored 10/24/2000

SATYAM COMPUTER SERVICES LTD NYSE Sponsored 5/18/2001

JK LAKSHMI CEMENT LTD OTC Sponsored 10/25/1994

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 GLOBAL DEPOSITARY RECEIPT
Global Depositary Receipt: -

 A global depositary receipt (GDR) is a certificate issued by a bank that represents shares in a
foreign stock on two or more global markets.
 GDRs typically trade on American stock exchanges as well as Eurozone or Asian exchange.
 GDRs and their dividends are priced in the local currency of the exchanges where the shares
are traded.
 GDRs represent an easy, liquid way for U.S. and international investors to own foreign stocks.

PROCESS OF ISSUING GDRs: -

i. To find the depositary bank.
ii. Issue the share to the depositary bank.
iii. Deposit the fee.
iv. Issue of GDRs and record.

How are GDRs created?

 The process of creating a GDR is quite similar to an ADR.

 Companies can approach depository banks of various countries and make an agreement with
them.
 In exchange for the companies handling the costs associated with trading in different markets,
the banks will handle all transactions between the investors and the GDRs of the company.

PRO’S AND CON’S OF GLOBAL DEPOSITARY RECEIPT:

PROS CONS
1) Easy to track and trade. 1) More complex taxation.
2) Denominated in local currency. 2) Limited selection of companies offering
GDRs.
3) Regulated by local exchanges.
3) Investors exposed indirectly to currency and
4) Offers international portfolio diversification.
geopolitical risk.
4) Potential lack of liquidity.

Types Of Global Depositary Receipt: -

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 GLOBAL DEPOSITARY RECEIPT

Rule 144A Regulation S

GDRs GDRs

List of GDRs issued by Indian Companies: -

DR Listing Date of
COMPANY Type
Exchange Issue

ABL BIO-TECHNOLOGIES
LUXEMBOURG Sponsored 6/20/200
LTD

ADITYA BIRLA NUVO PORTAL Sponsored 1/31/1994

APOLLO HOSPITALS
PORTAL Sponsored 7/7/2005
ENTERPRISE LTD

ASAHI INFRASTRUCTURE
& PROJECTS LTD LUXEMBOURG Sponsored 4/30/2009

BAJAJ AUTO LTD LONDON Sponsored 8/21/2008

BAJAJ FINSERV LTD LONDON Sponsored 8/21/2008

GUIDELINES FOR ADR/GDR ISSUES BY THE INDIAN

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 COMPANIES

Disinvestment of shares by the Indian companies in the overseas market through

issue of ADRs/GDRs: -

1) Divestment by shareholders of their holdings of Indian companies, in the overseas markets would
be allowed through the mechanism of Sponsored ADR/GDR issue in respect of: -

a. Divestment by shareholders of their holdings of Indian companies listed in India.

b. Divestment by shareholders of their holdings of Indian companies not listed in India but
which are listed overseas.

2) The process of divestment would be initiated by such Indian companies whose shares are being
offered for divestment in the overseas market by sponsoring ADR/GDR issues against the block of
existing shares offered by the shareholders under the provisions of these guidelines.
3) Such a facility would be available pari-passu to all categories of shareholders, of the company
whose shares are being sold in the ADR/GDR markets overseas. This would ensure that no class of
shareholders gets a special dispensation.

4) The sponsoring company, whose shareholders propose to divest existing shares in the overseas
market through issue of ADRs/GDRs will give an option to all its shareholders indicating the
number of shares to be divested and the mechanism how the price will be determined under the
ADR/GDR norms. If the shares offered for divestment are more than the pre-specified number to
be divested, shares would be accepted for divestment in proportion to existing holdings.
5) The proposal for divestment of the existing shares in the ADR/GDR market would have to be
approved by a special resolution of the company whose shares are being divested.
6) The proceeds of the ADR/GDR issue raised abroad shall be repatriated into India within a period of
one month of the closure of the issue.
7) Such ADR/GDR issues against existing shares arising out of the divestment would also come
within the purview of the existing SEBI Takeover Code if the ADRs/GDRs are cancelled and the
underlying shares are to be registered with the company as shareholders.

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8) Divestment of existing shares of Indian companies in the overseas markets for issue of
ADRs/GDRs would be reckoned as FDI. Such proposals would require FIPB approval as also other
approvals, if any, under the FDI policy.
9) Such divestment inducting foreign equity would also need to conform to the FDI sectoral policy
and the prescribed sectoral cap as applicable. Accordingly, the facility would not be available
where the company whose shares are to be divested is engaged in an activity where FDI is not
permitted.
10)Each case would require the approval of FIPB for foreign equity induction through offer of existing
shares under the ADR/GDR route.
11)Other mandatory approvals such as those under the Companies Act, etc. as applicable would have
to be obtained by the company prior to the ADR/GDR issue.
12)The issue related expenses (covering both fixed expenses like underwriting commissions, lead
managers charges, legal expenses and reimbursable expenses) for public issue shall be subject to a
ceiling of 4% in the case of GDRs and 7% in the case of ADRs and 2% in case of private
placements of ADRs/GDRs. Issue expenses beyond the ceiling would need the approval of RBI.
The issue expenses shall be passed onto the shareholders participating in the sponsored issue on a
pro-rata basis.
13)The shares earmarked for the sponsored ADR/GDR issue may be kept in an escrow account created
for this purpose and in any case, the retention of shares in such escrow account shall not exceed 3
months.
14)If the issues of ADR/GDR are made in more than one tranche, each tranche would have to be
treated as a separate transaction.
15)After completing the transactions, the companies would need to furnish full particulars thereof
including amount raised through ADRs/GDRs, number of ADRs/GDRs issued and the underlying
shares offered, percentage of foreign equity level in the Indian company on account of issue of
ADRs/GDRs, details of issue parameters, details of repatriation, and other details to the Exchange
Control Department of the Reserve Bank of India, Central Office, Mumbai within 30 days of
completion of such transactions.
16)The tax provision under Section 115 AC of the Income Tax Act 1961, which is applicable to non-
resident investors for ADR/GDR offering against issue of fresh underlying shares would extend to

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 non-resident investors investing in foreign exchange in ADRs/GDRs issued against disinvested
existing shares, in terms of the relevant provisions of the Income Tax Act, 1961
17)Resident shareholders divesting their holdings will be subject to Capital Gain tax provisions
applicable under the Income Tax Act 1961 i.e., Section 115 AC applicable for non-residents would
not extend to them.

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THE END

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