adr vs gdr
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Submitted byRaja Kumar Naik (32)Venkata Ashok (44)Vicky Kumar (45)
ADRs and GDRs
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Depository ReceiptA negotiable financial instrument issued by a
bank to represent a foreign company's publiclytraded securities.
The depositary receipt trades on a local stockexchange.
Allows investors to hold shares in equities ofother countries
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ADRA negotiable certificate issued by a U.S. bank
representing a specified number of shares (orone share) in a foreign stock that is traded on aU.S. exchange.
ADRs are denominated in U.S. dollars, with theunderlying security held by a U.S. financialinstitution overseas
ADRs are first introduced in 1927 by J P Morgan
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ADR US investors invest in foreign companies
Gain Dividends and Capital gains in US dollars
Reduce administration and duty costs that wouldotherwise be levied on each transaction.
Do not eliminate the currency and economic risksfor the underlying shares in another country
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Issue of ADR Bank studies the financials of company
Bank buys shares of the company
Shares are grouped in packets ADR ratio
For example ADR ratio 5:1 implies 5 shares indomestic market equals 1 ADR
Each packet is issued as an ADR
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Pricing of ADR Pricing depends on the price of underlying share
in the foreign market
With ADR ratio 5:1, if in foreign market shareprice is $1 in US it will be $5
price movements are influenced by
- demand supply forces,
- the condition of the foreign
countrys economy,- the prospects for the company
- and several other factors
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Types of ADR Unsponsored
With out the involvement of foreign company
No share holder rights
Sponsored
Contract between foreign company and bank
Grants shareholder rights
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Types of ADR Level 1 (OTC ADR)
Not listed on any US exchange
Companies that don not qualify
Companies that chose not to list on exchange
Level 2 (Listed ADR)
Listed on NASDAQ and NYSE
Stricter SEC regulations
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Types of ADR Level 3 (Public Issue)
Offered through a public issue by bank
Company can raise substantial funds
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Companies
Indian ADR Trading in US
ADR ISSUE SYMBOL INDUSTRY EXCHDR. REDDY'S LABORATORIES LTD. RDY Pharmaceutical NYSE
HDFC BANK LTD. HDB Banks NYSE
ICICI BANK LTD. IBN Banks NYSE
INFOSYS TECHNOLOGIES LIMITED INFY Technology Services NASDAQ
MAHANAGAR TELEPHONE NIGAM LIMITED MTE Fixed Line Comm. NYSE
REDIFF.COM INDIA LTD REDF Technology Services NASDAQ
SATYAM COMPUTER SERVICES LIMITED SAY Technology Services NYSE
SIFY LTD. SIFY Technology Services NASDAQ
VIDESH SANCHAR NIGAM LIMITED VSL Fixed Line Comm. NYSE
WIPRO LTD. WIT Technology Services NYSE
http://www.drreddys.com/http://www.wipro.com/http://www.wipro.com/http://www.vsnl.com/http://www.vsnl.com/http://www.sify.com/http://www.sify.com/http://www.satyam.com/http://www.satyam.com/http://www.rediff.com/http://www.rediff.com/http://www.mtnl.net.in/index.htmhttp://www.mtnl.net.in/index.htmhttp://www.infosys.com/http://www.infosys.com/http://www.icicibank.com/http://www.icicibank.com/http://www.hdfcbank.com/http://www.hdfcbank.com/http://www.drreddys.com/http://www.drreddys.com/ -
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GDRs: Global Depository Receipts
A bank certificate issued in more than one country forShares in a foreign company
Offered for sale globally through the various bank
branches
Shares trade as domestic shares
GDRs allow investors to invest in foreign companieswithout worrying about foreign trading practices, laws
Easier trading, payments of dividends are in the GDR
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GDR is usually listed on European stock exchanges suchas the London Stock Exchange.
Both ADRs and GDRs are usually denominated in U.S.dollars, but can also be denominated in Euros.
GDR issuance provides the company with visibility morelarger and diverse shareholder base
Ability to raise more capital in international markets
Have foreign Exchange Risk i.e. currency of issuer is
different from currency of GDR
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GDR CUSTODIAN BANK-:DEPOSITORY BANK
Custodian Bank located in same country
Works with the Depository Bank and followsinstructions from the depository bank.
Collects, remits dividends and forwards noticesreceived from the depository bank.
GDRs can only be issued under rule 144 A afteraccepting strict rules of SEC of USA
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advantages
GDRs allow investors to invest in foreign companieswithout worrying about foreign trading practices, laws
Easier trading, payments of dividends are in the GDRcurrency
GDRs are liquid because they are based on demandand supply which is regulated by creating orcancelling shares
GDR issuance provides the company with visibility,more larger and diverse shareholder base and theability to raise more capital in international markets
However, they have foreign exchange risk i.e.
currency of issuer is different from currency of GDR
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PROCESS FOR ADR/GDR
DOMESTIC CUSTODIANBANK
Has a custody of Indiancompany equity shares
INDIANCOMPANY
OVERSEAS DEPOSITORYBANK
INVESTORS
Release Equity Shares
Give Instructions to IssuesADRs/GDRs
IssueADRs/GDRs
Requests for buyingADRS/GDRS
Requests the bankto release of Equity Shares
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India- ADR and GDR
ADRs and GDRs are an excellent means of investmentfor NRIs and
Foreign nationals wanting to invest in India
By buying these, they can invest directly in Indian
companies without going through the hassle ofunderstanding the rules and working of the
Indian financial market since ADRs and GDRs are tradedlike any other stock
NRIs and foreigners can buy these using their regularequity trading accounts
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CompaniesGDR companies Size of GDR (US $mn) Shares per GDR GDR issue price (US $)
Arvind Mills 125 1 9.78
Crompton Greaves 50 1 7.56
Dr. Reddy's 48 1 11.16m
GAIL 22.5 6 9.67
Hindalco (1st) 72 1 10.73
Hindalco (2nd) 100 1 16
ICICI 230 5 11.5
Infosys 70.38 0.5 34
MTNL 418.53 2 11.958
Reliance 150 2 16.35
Reliance (2nd) 300 2 23.5
SBI 369.95 2 14.15
VSNL 527 0.5 13.93
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