ADRs and GDRs in International Capital Markets
Learn about American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) issued by international depositories, their advantages, types, and levels in the international equity market. Discover how ADRs facilitate overseas investments and GDRs enable trading on various stock exchanges.
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Presentation Transcript
Depository receipts 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 in turn issue the depository receipts, which entitle the holder of the receipts to get the underlying shares on demand.
DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc. DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In Indian context, DRs are treated as FDI
INTERNATIONAL CAPITAL MARKET INTERNATIONAL EQUITY MARKET INTERNATIONAL BOND MARKET EURO BOND FOREIGN BOND GDR ADR
AMERICAN DEPOSITORY RECEIPTS ADR is a dollar-denominated negotiable certificate. It represents a non-US company s publicly traded equity. It was originated in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets. ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values.
ADVANTAGES OF ADR/GDR Can be listed on any of the overseas stock exchanges /OTC/Book entry transfer system. Freely transferable by non-resident. They can be redeemed by ODB. The ODB should request DCB to get the corresponding underlying shares released in favor of non resident of investors. (Shareholders of issuing companies).
Types of adr SPONSORED ADR UNSPONSORED ADR Issued by broker/dealer or depository bank without the involvement of company whose stock underlies the ADR No regulatory reporting Issued with cooperation of the company whose stock will underlie the ADR Comply with regulatory reporting. Listing on international Stock Exchanges allowed. Trade on OTC market
Levels of adr 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. Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission [SEC]. Level 2- 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
The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX). Level 3- 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 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital
GLOBAL DEPOSITORY RECEIPTS A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros. The voting rights of the shares are exercised by the Depository as per the understanding between the issuing company and the GDR holders.
DIFFERNCE BETWEEN ADR & GDR ADR American depository receipt (ADR) is compulsory for non us companies to trade in stock market of USA. GDR Global depository receipt (GDR) is compulsory for foreign company to access in any other country s share market for dealing in stock. ADRs can get from level 1 to level III. GDRs are already equal to high preference receipt of level II and level III. GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA . GDR is negotiable instrument all over the world Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities . ADRs up to level I need to accept only general condition of SEC of USA. ADR is only negotiable in USA . Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ
WHICH INDIAN COMPANIES HAVE ADR & GDR COMPANY ADR Bajaj Auto No Dr Reddy s YES HDFC Bank YES ICICI bank YES ITC NO L&T NO MTNL YES GDR YES YES YES YES YES YES YES HINDALCO NO YES INFOSYS TECHNOLOGIES TATA MOTORS YES YES YES NO
COMPANIES ADR GDR PATNI COMPUTERS YES NO SBI NO YES WIPRO YES YES VSNL YES YES
