AMERICAN DEPOSITORY RECEIPTS

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Saranya Gopinath P

4/27/12

WHAT IS ADR?

An American Depository Receipt is a negotiable security that represents the underlying securities of a non U.S company in the U.S financial market. Individual shares of the securities of the foreign company represented by an ADR called American Depository 4/27/12 Shares [ ADS]

HISTORY OF ADR

The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges.

Depositary Receipts (DRs) were created in 1927, primarily to circumvent the difficulties associated with different currencies in the 4/27/12 foreign market

With ADRs, however, investors can take advantage of foreign markets while trading in U.S stock markets. Since each ADR represents a share or shares of the foreign company, the price of the ADR changes with the price of the foreign stock.
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Benefits to companies

Broadening and diversifying a companys U.S investor base. Enhancing a companys visibility, status and profile in the US and internationally among the investors. Offers a new avenue for raising equity capital often at highly 4/27/12

Benefits to investors

Convenient to purchase and hold a non US issuers securities. Opportunity to invest and earn in US dollars. Diversifying portfolio. Invest in high growth economics
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WORKING OF ADR MARKET

Sponsored ADR program

INVE STOR

BROK E/ DEAL ER

US EXCH ANGE

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3 LEVELS OF SPONSORED PROGRAMS

Under the sponsored program there are 3 levels and they are ; Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent.
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Level 2 depositary receipt programs are more complicated for a foreign company. When a foreign company wants to set up a Level 2 program, it must file a registration statement with the U.S. SEC and is under SEC regulation. The advantage that the company has 4/27/12 upgrading their program to Level by

A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. companies. Foreign companies with Level 3 4/27/12 programs will often issue materials

UNSPONSORED ADR PROGRAM

Unsponsored shares trade on the over-the-counter (OTC) market.

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These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank

INDIAN DEPOSITORY RECEIPTS

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An Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities 4/27/12 Markets.

The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares

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Standard Chartered PLC became the first global company to file for an issue of Indian depository receipts in India. Rules (principal rules) were operationalised by the Securities and Exchange Board of India(SEBI)the Indian markets regulator in 2006.
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ELIGIBILITIES FOR ISSUING IDR

It has net tangible assets of at least Indian Rupee three core in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets It has a track record of distributable profits in terms of section 205 of the 4/27/12 Companies Act, 1956, for at least

It has a net worth of at least one core in each of the preceding three full years The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the 4/27/12 audited balance sheet of the

the issuing company is listed in its home country the issuing company is not prohibited to issue securities by any regulatory body the issuing company has track record of compliance with securities market 4/27/12

PROCESS OF ISSUING IDR

The process is similar to an IPO where a draft prospectus is filed with the SEBI. The minimum issue size is $500 million (around Rs 2,250 core). Shares underlying IDRs will be deposited with an overseas custodian 4/27/12

BENEFIT TO KEY HOLDERS

To Foreign companies:

A company which has significant business in India can increase its value through IDRs by breaking down market segmentations, reaching trapped pools of liquidity, achieving global benchmark valuation, accessing international shareholder base and improving its brand's presence through global visibility 4/27/12

To Investors:

IDRs can lead to better portfolio management and diversification for investors by giving them a chance to buy into the stocks of reputed companies abroad. To Employees:

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To Regulator:

IDRs will lead to more liquid capital markets and a continuous improvement in regulatory environment, thereby increasing transactional revenues for the regulator
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GLOBAL DEPOSITORY RECEIPTS

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A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares
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Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange, where 4/27/12 they are traded on the International

PROCEDURE FOR THE ISSUE OF GDR

APPROVALS The issue of GDR require approvals of board of directors, shareholders and other regulatory authorities and financial institutions

APPOINTMENT OF INTERMEDIARIES GDR normally involve a number of intermediaries including lead manager , core manager, legal advisor, legal agent

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PRINCIPAL DOCUMENATAION The principle documents required to be prepared include subscription agreement depository agreement, custodian agreement and trust deed

PRE AND POST LAUNCH Apart from obtaining necessary approvals , documentation, additional key actions necessary for making the issue of GDR a success include timing, pricing and size of issue 4/27/12

WHICH INDIAN COMPANIES HAVE GDR AND ADR

COMPANY Bajaj auto Dr. Reddys HDFC bank ICICI bank ITC L&T MTNL 4/27/12 NO YES YES YES NO NO YES ADR YES YES YES YES YES YES YES GDR

COMPANY Hindalco Infosys technologies Tata motors Patni computers State bank of India Wipro VSNL 4/27/12 NO YES YES YES NO YES YES

ADR YES YES NO NO YES YES YES

GDR

STOCK EXCHANGES TRADING GDR ARE:

London stock exchange Singapore stock exchange Dubai international financial exchange Luxemburg stock exchange 4/27/12

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