adr & gdr
TRANSCRIPT
ADR & GDR
Presented Bymanish gupta
2nd yr. student PGPBM Finance (2009-2011)
Kohinoor business school, khandala, pune
Depository Receipts (DR)
Is a type of negotiable instrument (transferable)
financial security.
allows investors to hold shares in equity of other
countries.
What is ADR ?
•
ADR- American Depositary Receipts
• ADR is a negotiable US certificate ownership of shares in an non-US
corporation. It is quoted and traded in US dollars in US securities
market and dividends are paid to investors in US dollars.
• ADR is specifically designed to facilitate purchase, holding and sale of
non-US securities by US investor and to provide corporate finance
vehicle for non-US companies.
Domestic
Stock
Exchange
U.S
certificate
ADR
ADR RECEIPT
Some more points about ADRs
• ADRs were first introduced in 1927.
• The stock of many non-US companies, trade on
US exchanges through the use of ADRs.
• ADRs enable US investors to buy shares in
foreign companies without undertaking cross-
border transactions.
• The shares of the non-US corporation trade on a
non-US exchange, while the ADRs trade on a US
exchange.
ADR Ratio
• Single
1 ADR = 1 SHARE
ADR Ratio = 1:1
• Multiple
1 ADR = 5 SHARES
ADR Ratio = 1:5
• Fraction
1 ADR = ½ SHARE
ADR Ratio = 2:1
How does ADR/GDR work ?
• Suppose price of Infosys share in stock market is
around Rs. 2000.
• Lets $1= Rs 40, assume for simplicity.
• Then US bank purchase 10000 shares of Infosys ,
and issued ADR at ratio of 10:1.
• It means 1 ADR= 10 shares, 1 ADR= Rs 400.
ADR
TYPES of ADR : ADR listing :
• Unsponsored ADR NASDAQ
• Sponsored ADR AMEX
Level 1 NYSE
Level 2
Level 3
Benefits of ADR
• TO COMPANIES:
Broadening and diversifying a company US’s
investor base.
Enhancing company visibility, status and profile in the
US and internationally among investors.
Offers a new source of raising equity capital, often at
highly competitive rates.
Benefits of ADR contd…….
• TO INVESTORS:
Convenient to purchase and hold a non-US issuer
securities.
Opportunities to invest and earn in US Dollars.
Diversifying portfolio.
Invest in high growth economies.
Disadvantages of ADR
• ADR cannot be exchanged with its home
market security.
Participants in ADR Market
Brokers
Accountants
Investment
Banker Lawyers Investment
Relations Firm
Custodian
Depository
Issuer
GDR – Global Depositary
Receipts
• A negotiable certificate held in the bank of one country
representing a specific number of shares of a stock
traded on an exchange of another country.
• To raise money in more than one market, some
corporations use GDRs to sell their stock on markets in
countries other than the one where they have their
headquarters.
Objective of GDR
• Enable investors in diversifying their funds in
international securities.
Factors effecting GDRs prices:
• company track record
• analysts recommendations
• market conditions
• international status of the company
GDR Listing
• London Stock Exchange
• Luxembourg Stock Exchange
• DIFX
• Singapore Exchange
• Hong Kong Exchange
Advantages of GDRs
• Shareholder wealth maximization.
• allow investors to invest in foreign companies
without worrying about foreign trading practices,
laws.
Disadvantage of GDRs:
• GDR have foreign exchange risk i.e. currency of issuer is
different from currency of GDR.
India- ADR and GDR
• ADRs and GDRs are an excellent means of
investment for NRIs and foreign nationals wanting to
invest in India.
• By buying these, they can invest directly in Indian
companies without going through the hassle of
understanding the rules and working of the Indian
financial market – since ADRs and GDRs are traded
like any other stock.
• NRIs and foreigners can buy these using their regular
equity trading accounts.
Indian Companies using ADR/GDR
• Some of them are:
• Bajaj Auto
• Dr. Reddy’s
• HDFC Bank.
• Hindalco.
• ICICI Bank
• Infosys
• ITC
• L & T
• Wipro
References
• www.google.com
• www.wikipedia.com
• www.investopedia.com
• www.businessfinance.com
• www.icai.org