SCHOOL OF COMMERCE

PPT ON:----

AMERICAN DEPOSITORY RECEIPT

Submitted to – Submitted by-

Prof. Anand Modi Vinod kumar
MBA (FT) 7th sem
5 year
 AMERICAN
DEPOSITARY RECEIPTS
 Introduction

• Depository receipts are instruments issued by international

depositories(ODB), and they represent an interest in the underlying
shares held by them in the issuer company(Indian company). The
shares are usually held by a domestic custodian on behalf of the
depositories and the depositories in turn issue the depository
receipts, which entitle the holder of the receipts to get the underlying

shares on demand.
 What are ADRs ??????
 Introduced by JP Morgan in 1927

 Prices in US Dollar

 Dividends in US Dollar

 Traded like shares of US-based company

 Involved banks: depository bank and investment bank

 Represents fraction of a shares, single share or multiple shares of foreign

stock
 Composite ADR Index……….
• 450 companies
• 39 countries
• Listed on
 NYSE
 AMEX
 NASDAQ
• New ADR are added quarterly
 Types of ADR…

• Unsponsored ADR Program

• Sponsored ADR Program

 Level I

 Level II

 Level III

 Two restricted programs

 Level I
• Traded in the „over the counter“ (OTC) market & some exchange outside US

• No full Securities and Exchange Commission (SEC) disclosure

• No Generally Accepted Accounting Principles (GAAP)

• Security listed on one or more stock exchange in a foreign jurisdiction

• Only annual report on its homepage in English

 Level II (listed)
• Listed on U.S. exchange or quoted on NASDAQ
Get higher visibility trading volume

– To set up  File a registration statement with the SEC

– More under SEC regulation

– File a form 20-F annually

– Partial compliance with GAAP

 Level III (offering)

• Public offer on a US exchange market

Able to raise capital

Substantial visibility in the US financial markets

„Put under microscope“

– More requirements from SEC

– File form 20-F annually

– Complete compliance with GAAP

– Addition: material information given to shareholder in home market, must be filed

with the SEC through Form 8K
 Create an ADR...
Investor decide to invest in an non-U.S. company

Contacts broker to make a purchase

Broker purchase actual ordinary shares to depositary bank‘s custodian in the foreign country

Broker convert U.S. Dollar received from the investor into the foreign currency

On same day shares are delivered to custodian bank

Custodian notifies the depository bank

DR are issued and delivered to broker

Broker delivers DR to investor

 How an ADR works?
Dividends are paid

Custodian bank received it and withholds any foreign taxes

Custodian bank changes currency into U.S. Dollar

Custodian bank sends it to depositary bank

Depositary bank sends this to investor

 How does ADR work ?

 Let us take TCS example – trades on the Indian stock at

around Rs.2000/-
 This is equivalent to US$ 40 – assume for simplicity
 Now a US bank purchases 10000 shares of TCS and issues
them in US in the ratio of 10:1
 This means each ADR purchased is worth 10 TCS shares.
 Quick calculation means 1 ADR = US $400
 Once ADR are priced and sold, its subsequent price is
determined by supply and demand factors, like any ordinary
shares.
 Advantages of ADR
 It is an easy and cost effective way to buy shares of a foreign
company

 Reduces administrative costs and avoids foreign taxes on

every transaction

 Helps companies which are listed to tap the American equity

markets

 Any foreigner can purchase these securities

 The purchaser has a theoretical right to exchange shares ( non-

voting right shares for voting rights)
 Disadvantages...

• Only small selection of ADRs available for trading

• Long time to receive information

• Depository bank charge fees & expenses for converting currency

• Country specific risk

• Currency exchange risk

• Political and economical risks

 Indian Companies using ADR
COMPANY ADR
   
Bajaj Auto No
Dr. Reddys Yes
HDFC Bank Yes
Hindalco No
ICICI Bank Yes
Infosys Technologies Yes
ITC No
L&T No
MTNL Yes
Patni Computers Yes
Ranbaxy Laboratories No
Tata Motors Yes
State Bank of India No
VSNL Yes
WIPRO Yes
Specimen Of ADR …
THANK
YOU!