Transcript of "ADR GDR IDR"

1. 1. ADR, GDR & IDR 12. 2.  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. DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc. 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. DEPOSITORY RECEIPTS 2

3. 3. ININTTEERRNNAATTIOIONNAALL C CAAPPITITAALL M MAARRKKEETT ININTTEERRNNAATTIOIONNAALL B BOONNDD M MAARRKKEETT ININTTEERRNNAATTIOIONNAALL E EQQUUITITYY M MAARRKKEETT EURO BOND EURO BOND FOREIGN BOND GGDDRR AADDRR FOREIGN BOND 3

4. 4.  ADR were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. ADR is a dollar-denominated negotiable certificate. It represents a non-US company’s publicly traded equity. It was devised 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. AMERICAN DEPOSITORY RECEIPTS 4

5. 5. Process to Issue ADR/GDR Issuing Company (RIL) Foreign Depository (Morgan Stanley) Clearing Agency (Euro Clear) Domestic Custodian bank (SBI) GDR/ADR Holders (Bank Of America) Foreign Stock Exchange (NYSE) Share Certificate Confirmation Issue of DR Payment Dividend 5

6. 6.  The ODB should request DCB to get the corresponding underlying shares released in favor of non resident of investors. (Shareholders of issuing companies). They can be redeemed by ODB. Freely transferable by non-resident. Can be listed on any of the overseas stock exchanges /OTC/Book entry transfer system. Advantages Of ADR/GDR 6

7. 7. Types of ADR SPONSORED ADR UNSPONSORED ADR Issued with cooperation of the company whose stock will underlie the ADR Issued by – broker/dealer or depository bank without the involvement of company whose stock underlies the ADR Comply with regulatory reporting. No regulatory reporting Listing on international Stock Exchanges allowed. Trade on OTC market 7

8. 8. Levels of ADR 89. 9.  They require minimal SEC registration. Companies that have level 1 ADRs may upgrade

to level II or level III ADR program. Level 1 ADRs essentially enable a company to obtain the benefits of a US publicly traded security without altering their current reporting process. The issuing company does not have to comply with US generally accepted accounting principles (GAAP) or provide US Securities and Exchange Commission (SEC) disclosure. Level 1 ADRs are traded in the over-the –counter (OTC) market. Level 1 ADRs are the lowest level of sponsored ADRs and also the simplest method for companies to access the US capital markets. Level 1 ADRs: 9

10. 10.  Level II ADRs require a form 20-F and form F-6 to be filled with the SEC, as well as meeting the listing requirements and filing a listing application with the designated stock exchange. Upon F-6 effectiveness and approval of the listing application, the ADRs begin trading. Level II ADRs require full registration with the Securities and Exchange Commission. Companies must also meet the requirements of the appropriate stock exchange. Level II ADRs enable companies to list their ADRs on Nasdaq, the American Stock Exchange, the New York Stock Exchange and the OTC bulletin board, thereby offering higher visibility in the US market, more active trading and greater liquidity. Level II ADRs: 10

11. 11.  Level III ADR programs must comply with various SEC rules, including the full registration and reporting requirements of the SEC's Exchange Act. The benefits of level III ADRs are substantial; it allows the issuer to raise capital and leads to much greater visibility in the U.S market. level III ADRs enable companies to list their ADRs on Nasdaq, the Amex, the NYSE or the OTC Bulletin Board and make a simultaneous public offering of ADRs in the united states Level III ADRs: 11

12. 12.  Avg weekly (high Should not be less than higher of the two following Pricing of ADR/GDR 12 & Avg weekly (highlow) closing prices in the last six months. & There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets. 2%----Private placement of ADR’s/GDR’s. 7%----in case of ADR 4%--- in case of GDR low) closing prices in the last two weeks. Issue related expenses: should not exceed

13. 13. Trading Depositary Receipts BUYING Source: Depositary receipts information guide; CITIGROUP 13

14. 14.  Underwriters: Merrill Lynch, Fenner Offering price: $13.44 per ADS ADSs that were offered: 130,440,000 ADSs Raised $1.75 billion India's STERLITE INDUSTRIES LTD & Smith Inc, Morgan Stanley & Underwriting discounts Total expenses of the offering excluding Depositary for the ADS: Citibank, N.A. co. intl plc, and Citigroup, Global markets Inc & Note: - Underwriters pay for their own legal fees 14 Accounting fees: $2.0 million Estimated legal fees: $ 2.5 million Printing fees: $1.6 million Registration fees: $ 0.1 million commissions: $ 9.0 million

15. 15.  The voting rights of the shares are exercised by the Depository as per the understanding between the issuing company and the GDR holders. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros. 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. GLOBAL DEPOSITORY RECEIPTS 15

16. 16.  Just as ADRs allow non-US issuers to access the important US market, GDRs allow issuers to tap the European markets. With the global integration of the major securities markets, it is now commonplace to have fungible securities listed and cleared in more than one market. Regulation S Non-US companies now have ready access to the US equity private placement market and may thus raise capital through the issue of Rule 144A GDRs without complying with the stringent SEC registration and reporting requirements. Rule 144A GDRs are privately placed depositary receipts which are issued and traded in accordance with Rule 144A. This rule was introduced by the SEC in April 1990 in part to stimulate capital raising in the US by non-US issuers. Rule 144A GDRs 16 Types of GDR

17. 17. Difference Between ADR & GDR ADR GDR American depository receipt (ADR) is compulsory for non –us companies to trade in stock market of USA. 17 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. ADRs up to level –I need to accept only general condition of SEC of USA. GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA . ADR is only negotiable in USA . GDR is negotiable instrument all over the world Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities .

18. 18. Which INDIAN companies have ADR & GDR COMPANY ADR GDR Bajaj Auto No YES Dr Reddy’s YES YES HDFC Bank YES YES ICICI bank YES YES ITC NO YES L&T NO YES MTNL YES YES HINDALCO NO YES INFOSYS TECHNOLOGIES YES YES TATA MOTORS YES NO PATNI COMPUTERS YES NO SBI NO YES WIPRO YES YES VSNL YES YES 18

19. 19.  Like equity shares, these are unsecured instruments Represents interest in the share of non-Indian company’s equity. IDRs are the depository receipts dominated by Indian issued by the domestic depository receipt. ₹ These are financial instrument that allows foreign companies to mobilize funds from Indian capital market. INDIAN DEPOSITORY RECEIPTS 19 & It provides chance to Indian investors to hold equity shares of foreign company’s.negotiable from one to another investors.

20. 20.  SEBI registered foreign institutional investor including their sub accounts. 20 NRIs. Any person who is resident in India as defined under FEMA. Who can Invest?

21. 21.  Registrar and transfer agent 21 Merchant banker Domestic depository Overseas custodian Intermediaries involved in issuance of IDR

22. 22. Eligibility Criteria As per the companies IDR rules Criteria Requirements Capital Pre issue paid up capital and free reserve are at least US$ 50 million. Market capitalization Minimum average market capitalization (during the last 3 years) in its parent country of at least US$ 100 million. Operation history Continuous trading record or history on a stock exchange in its parent country at least 3 immediately preceding years. Track record of distributable profits Track record of distributable profits in terms of section 205 of the companies act. 1956 for at least 3 out of immediately preceding 5 years. Other requirements Fulfil such other eligibility criteria as may be laid down by SEBI from time to time in this behalf. 22

23. 23.  Extent of issue- The no. of underlying issue shares offered in a financial year through IDR offering shall not exceeds 25% of the post issue no. of equity share of the company. 23 Minimum application amount- Shall be 20,000. ₹ Issue Size- Issue shall not be less then

50crore. ₹ Balance 20% to be appointed between Non-institutional investors (NII). 30% of the issue should be offered to retail individual investors (RIB) including employees. Minimum 50% of the issue should be allotted qualified institutional buyers (QIB). Allocation of the Issues

24. 24.  QIB-Above 1,00,000 and up to the issue size. 24₹ NII- Above 1,00,000 and up to the ₹issue size RII- Minimum of 20,000 of and maximum of 1,00,000. ₹ ₹ Limits of Investment

25. 25. Procedures Pre- listing Offering process Eligibility criteria & public offering Listing on stock Exchange 25

26. 26.  Regulators. 26 Employees. Investors. Issuing companies. Benefits to the Key Stack Holders

27. 27. THANK YOU 27

Friday, August 31, 2012

ADR, GDR and IDR ExplainedFor understanding American Depository Receipt, Global Depository Receipt and Indian Depository Receipt, consider an example:Part-1Suppose we have an Indian Company let's say Verloop Consultants. The company is performing well and has good prospects. Since Verloop is a publicly traded company, it can issue shares and these shares are listed on various stock exchanges such as NSE, BSE etc. These shares can be traded by Gaurav, an Indian Investor. But suppose Alex, living in US want to invest in these shares then how can he do it:1. Sometimes the shares are listed on foreign Stock Exchanges such as NYSE(New York Stock Exchange) etc. But sometimes the policies followed in these Stock Exchanges are different from that followed in Indian Stock Exchange and sometimes more stringent. So, many times the companies choose not to be listed on the Foreign Stock Exchange directly.  2. So, the company can choose to be get listed on the stock exchange indirectly, and this is through ADR and SDR.

Part-2So, how does this work out. Verloop deposits a large number of its share with a bank in the country (here USA) where it want to list indirectly. The bank issuesreceipts against these shares, each receipt having a fixed number of shares. These receipts are then listed on the stock market and they behave like normal shares. Their price fluctuate depending upon the market condition and on the prospects of Company. 

Difference between ADR, GDR and IDR The difference between ADR, GDR and IDR is only in the places where the Depositories are listed.  If the Depository Receipt is to be traded in India, then it is called Indian Depository Receipt(IDR) . If the Depository Receipt is to be traded in US, then it is known as American Depository Receipt(ADR). If the Depository Receipt is to be traded elsewhere in the world, then it is known as Global D

Depository Receipts :Depository Receipts are  a type of negotiable (transferable) financial security, representing a security, usually in the form of

equity, issued by a foreign publicly-listed company.  However, DRs are   traded on a local stock exchange though the foreign

public listed company is not traded on the local exchange.  

 Thus, the DRs are  physical certificates,  which allow investors to hold shares in equity of other countries.  . This type of instruments first started in USA in late 1920s and are commonly known as American depository receipt (ADR).   Later on these have become popular in other parts of the world also in the form of Global Depository Receipts (GDRs).    Some other common

type of DRs are European DRs and International DRs. 

In nut shell we can say  ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the

London Stock Exchange. Both ADRs and GDRs are usually denominated in US dollars, but  these can also be denominated in Euros.

  

How do Depository Receipts Created?   

When a foreign company wants to list its securities on another country’s stock exchange, it can do so through  Depository Receipts (DR) mode.  . To allow creation of  DRs, the shares of the foreign company, which the DRs represent, are first of all

delivered and deposited with the custodian bank of the depository through which they intend to create the DR.   On receipt of the delivery of shares,  the custodial bank creates DRs and  issues the  same to investors in the country where the DRs are intended to

be listed. These DRs are then listed and traded in the local stock exchanges of that country.  

How do Depository Receipts Created?   

When a foreign company wants to list its securities on another country’s stock exchange, it can do so through  Depository Receipts (DR) mode.  . To allow creation of  DRs, the shares of the foreign company, which the DRs represent, are first of all

delivered and deposited with the custodian bank of the depository through which they intend to create the DR.   On receipt of the delivery of shares,  the custodial bank creates DRs and  issues the  same to investors in the country where the DRs are intended to

be listed. These DRs are then listed and traded in the local stock exchanges of that country. 

What are ADRs :American Depository Receipts popularly known as ADRs were introduced in the American market in 1927.  ADR is a security issued by a company outside the U.S. which physically remains in the country of issue, usually in the custody of a bank, but is traded on U.S. stock exchanges.  In other words, ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation.   Thus, we can say ADRs are one or more units of a foreign security traded in American market.   They are traded just like  regular stocks of other corporate but are issued / sponsored in the U.S. by a bank or brokerage.  ADRs were introduced with a view to simplify the physical handling and legal technicalities governing foreign securities as a result of the complexities involved in buying shares in foreign countries. Trading in foreign securities is prone to number of difficulties like different prices

and in different currency values, which keep in changing almost on daily basis.   In view of such problems, U.S. banks found a simple methodology wherein they  purchase a bulk lot of shares from foreign company and then bundle these shares into groups, and reissue them and get these quoted on American stock markets. For the American public ADRs simplify investing. So when Americans purchase Infy (the Infosys Technologies ADR) stocks listed on Nasdaq, they do so directly in dollars, without converting them from rupees.   Such companies are required to declqare financial results according to a standard accounting principle, thus, making their earnings more transparent. An American investor holding an ADR does not have voting rights in the company. The above indicates that ADRs are issued to offer investment routes that avoid the expensive and cumbersome laws that apply sometimes to non-citizens buying shares on local exchanges.   ADRs are listed on the NYSE, AMEX, or NASDAQ. 

 Global Depository Receipt (GDR):   These are similar to the ADR but are  usually listed on exchanges outside the U.S., such as Luxembourg or London. Dividends are usually paid in U.S. dollars.    The first GDR was issued in 1990.

 ADVANTAGES OF ADRs: There are many advantages of ADRs.   For individuals, ADRs are an easy and cost effective way to buy shares of a foreign company.    The individuals are able to  save considerable money and energy by trading in ADRs, as it reduces administrative costs and avoids foreign taxes on each transaction.   Foreign entities prefer ADRs, because they get more U.S. exposure and it allows them to tap  the  American equity markets.   The shares represented by ADRs are  without voting rights.   However, any foreigner can purchase these securities whereas shares in India can be purchased on Indian Stock Exchanges only by NRIs or PIOs or FIIs.     The purchaser has a theoretical right to exchange the receipt without voting rights for the shares with voting rights (RBI permission required) but in practice, no one appears to be interested in exercising this right.

 Some Major ADRs issued by Indian Companies  :

Among the Indian ADRs listed on the US markets, are Infy (the Infosys Technologies ADR),  WIT (the Wipro ADR),  Rdy(the Dr Reddy’s Lab ADR), and Say (the Satyam Computer ADS)

 

What are Indian Depository Receipts (IDR) :Recently SEBI has issued guidelines for foreign companies who wish to raise capital in India by issuing Indian Depository

Receipts.  Thus, IDRs will be  transferable securities to be listed on Indian stock exchanges in the form of depository receipts.  Such IDRs will be created by a Domestic Depositories in India against the underlying equity shares of the issuing company

which is incorporated outside India. 

Though IDRs will be freely priced., yet in the prospectus  the issue price has to be justified.   Each IDR will represent a certain number of shares of the foreign company.   The shares will not be listed in India , but have to be  listed in the home country.  

The IDRs will allow the Indian investors to tap the opportunities in stocks of foreign companies and that too without the risk of investing directly which may not be too friendly.   Thus, now Indian investors will have easy access to international capital

market.Normally, the DR are allowed to be exchanged for the underlying shares held by the custodian and sold in the home country and

vice-versa.   However, in the case of IDRs, automatic fungibility is not permitted.  SEBI has issued  guidelines for issuance of IDRs  in April, 2006,   Some of the major norms for issuance of IDRs are as follows.  

SEBI has set Rs 50 crore as the lower limit for the IDRs to be issued by the Indian companies.   Moreover,  the minimum investment required in the IDR issue by the investors has been fixed  at Rs two lakh.  Non-Resident Indians and Foreign

Institutional Investors (FIIs) have not been allowed to purchase or possess IDRs without special permission from the Reserve Bank of India (RBI). Also, the IDR issuing company should have good track record with respect to securities market regulations

and companies not meeting the criteria will not be allowed to raise funds from the domestic market   If the IDR issuer fails to receive minimum 90 per cent subscription on the date of closure of the issue, or the subscription level later falls below 90 per

cent due to cheques not being honoured or withdrawal of applications, the company has to refund the entire subscription amount received, SEBI said.  Also, in case of delay beyond eight days after the company becomes liable to pay the amount, the company

shall pay interest at the rate of 15 per cent per annum for the period of delay.  

 

 

 

 

  

ADR GDR IDR : Depository ReceiptsWith the current correction in the Indian stock market, the valuations have become even better. And the logic of investing in Indian equity market has become even more compelling.

This is great for people living in India – they can invest in various mutual funds(MFs), or can choose some great companies and invest in those.

But what about Non Resident Indians (NRIs) and foreign nationals? Considering the many restrictions on NRIs and foreign nationals investing in India, how can they benefit from the potential that India offers?

There are some very good proxies to investing directly in India – and ADRs and GDRs are a great option.

What is an ADR / GDR?ADR stands for American Depository Receipt. Similarly, GDR stands forGlobal Depository Receipt. Let’s understand these better.

Every publicly traded company issues shares – and these shares are listed and traded on various stock exchanges. Thus, companies in India issue shares which are traded on Indian stock exchanges like BSE (The Stock Exchange, Mumbai), NSE (National Stock Exchange), etc.

These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation).

But to list on a foreign stock exchange, the company has to comply with the policies of those stock exchanges. Many times, the policies of these exchanges in US or Europe are much more stringent than the policies of the exchanges in India. This deters these companies from listing on foreign stock exchangesdirectly.But many good companies get listed on these stock exchangesindirectly – using ADRs and GDRs.This is what happens: The company deposits a large number of its shares with a bank located in the country where it wants to list indirectly. The bank issuesreceipts against these shares, each receipt having a fixed number of shares as an underlying (Usually 2 or 4).

These receipts are then sold to the people of this foreign country (and anyone who is allowed to buy shares in that country). These receipts are listed on the stock exchanges. They behave exactly like regular stocks – their prices fluctuate depending on their demand and supply, and depending on the fundamentals of the underlying company.

These receipts, which are traded like ordinary stocks, are called Depository Receipts. Each receipt amounts to a claim on the predefined number of shares of that company.

The issuing bank acts as a depository for these shares – that is, it stores the shares on behalf of the receipt holders.What is the difference between ADR and GDR?

Both ADR and GDR are depository receipts, and represent a claim on the underlying shares. The only difference is the location where they are traded.

If the depository receipt is traded in the United States of America (USA), it is called an American Depository Receipt, or an ADR.If the depository receipt is traded in a country other than USA, it is called aGlobal Depository Receipt, or a GDR.How can you use an ADR / GDR?

ADRs and GDRs are not for investors in India – they can invest directly in the shares of various Indian companies.

But the 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!

What are Indian Depository Receipts (IDR) :

Recently SEBI has issued guidelines for foreign companies who wish to raise capital in India by issuing Indian Depository Receipts. Thus, IDRs will be transferable securities to be listed on Indian stock exchanges in the form of depository receipts. Such IDRs will be created by a Domestic Depositories in India against the underlying equity shares of the issuing company which is incorporated outside India.

Though IDRs will be freely priced., yet in the prospectus the issue price has to be justified. Each IDR will represent a certain number of shares of the foreign company. The shares will not be listed in India , but have to be listed in the home country.

The IDRs will allow the Indian investors to tap the opportunities in stocks of foreign companies and that too without the risk of investing directly which may not be too friendly. Thus, now Indian investors will have easy access to international capital market.

Normally, the DR are allowed to be exchanged for the underlying shares held by the custodian and sold in the home country and vice-versa. However, in the case of IDRs, automatic fungibility is not permitted.

SEBI has issued guidelines for issuance of IDRs in April, 2006, Some of the major norms for issuance of IDRs are as follows. SEBI has set Rs 50 crore as the lower limit for the IDRs to be issued by the Indian companies. Moreover, the minimum investment required in the IDR issue by the investors has been fixed at Rs two lakh. Non-Resident Indians and Foreign Institutional Investors (FIIs) have not been allowed to purchase or possess IDRs without special permission from the Reserve Bank of India (RBI). Also, the IDR issuing company should have good track record with respect to securities market regulations and companies not meeting the criteria will not be allowed to raise funds from the domestic market If the IDR issuer fails to receive minimum 90 per cent subscription on the date of closure of the issue, or the subscription level later falls below 90 per cent due to cheques not being honoured or withdrawal of applications, the company has to refund the entire subscription amount received, SEBI said. Also, in case of delay beyond eight days after the company becomes liable to pay the amount, the company shall pay interest at the rate of 15 per cent per annum for the period of delay

R-ADR-IDR-EDRSQuestion1.  DRs.IntroductionDepository Receipts are  a type of negotiable (transferable) financial security, representing a security, usually in the form of equity, issued by a foreign publicly-listed company.  However, DRs are   traded on a local stock exchange though the foreign public listed company is not traded on the local exchange. TRADINGThe Details of a DR Purchase by An Investor

1.     An investor calls her broker to buy DRs for a particular company.2.     The broker fills the order by either buying the DRs on any of the exchanges that it

trades, or by buying ordinary company shares in the home market of the company by using a broker in the issuer's country. The foreign broker then delivers the shares to the custodian bank.

3.     The investor’s broker notifies the depositary bank that ordinary shares have been purchased in the issuer's market and will be delivered to the custodian bank and requests depositary shares to be issued in the investor’s account.

4.     The custodian notifies the depositary bank that the shares have been credited to the depositary bank’s account.

5.     The depositary bank notifies the investor’s broker that the DRs have been delivered.

6.     The broker then debits the account of the investor for the DR issuance fee.The Details of a DR Sale by an Investor

1.     An investor instructs his broker to sell his DRs. The investor must deliver the shares within 3 business days if the shares are not in the street name of the broker.

2.     The broker can either sell the shares on the exchanges where the DR trades, or the DRs can be canceled, and converted into the ordinary shares of the issuing company.

3.     If the broker sells the shares on an exchange, then the broker uses the services of a broker in the issuer's market.

4.     If, instead, the shares are canceled, then the broker will deliver the shares to the depositary bank for cancellation and provide instructions for the delivery of the ordinary shares of the company issuer. The investor pays the cancelation fees and any other applicable fees.

5.     The depositary bank instructs the custodian bank to deliver the ordinary shares to the investor’s broker, who then credits the account of its customer.Types

A.   ADR

1.     American Depository Receipts popularly known as ADRs were introduced in the American market in 1927.

2.     ADR is a security issued by a company outside the U.S. which physically remains in the country of issue, usually in the custody of a bank, but is traded on U.S. stock exchanges.

3.     ADR is a security that trades in the United States but represents a specified number of shares in a foreign corporation.

4.     ADRs are one or more units of a foreign security traded in American market. They are traded just like regular stocks of other corporate but are issued / sponsored in the U.S. by a bank or brokerage. 

5.     ADRs were introduced with a view to simplify the physical handling and legal technicalities governing foreign securities as a result of the complexities involved in buying shares in foreign countries.

6.     Trading in foreign securities is prone to number of difficulties like different prices and in different currency values, which keep in changing almost on daily basis. In view of such problems, U.S. banks found a simple methodology wherein they purchase a bulk lot of shares from foreign company and then bundle these shares into groups, and reissue them and get these quoted on American stock markets.

7.     For the American public ADRs simplify investing. So when Americans purchase Infy (the Infosys Technologies ADR) stocks listed on Nasdaq, they do so directly in dollars, without converting them from rupees. Such companies are required to declare financial results according to a standard accounting principle, thus, making their earnings more transparent.

8.     An American investor holding an ADR does not have voting rights in the company.

9.     ADRs are issued to offer investment routes that avoid the expensive and cumbersome laws that apply sometimes to non-citizens buying shares on local exchanges.

10.                        ADRs are listed on the NYSE, AMEX, or NASDAQ

Advantages of ADRs1.     ADRs can be bought and sold just like shares of IBM or Coca-Cola.2.     You don't need a foreign brokerage account or a new broker; you can use the same

broker that you normally deal with.3.     Prices for ADRs are quoted in U.S. dollars, and dividends are paid in dollars.4.     ADRs trade during U.S. market hours and are subject to similar clearing and

settlement procedures as American stocks.5.     You can customize your portfolio however you like, depending on which countries

or sectors you are interested in.

Disadvantages of ADRs1.     By the same token, ADRs have some important limitations and drawbacks.2.     Limited selection: Not all foreign companies are available as ADRs. For example,

Japan's Toyota Motor has an ADR, but Germany's BMW does not.3.     Liquidity: Plenty of companies have ADR programs available, but some may be

very thinly traded.4.     Exchange rate risk: While ADRs are priced in dollars, for sake of convenience,

your investment is still exposed to fluctuations in the value of foreign currencies.5.     Because ADRs are like stocks, you need to buy enough of them to ensure adequate

diversification. So if you don't have enough investment capital to spread around, say 25 to 30 ADRs (or more), you won't be able to create a truly diversified portfolio on your own.Companies that have issued ADRs are:

1.     Dr. Reddys2.     HDFC Bank3.     ICICI Bank4.     Infosys Technologies5.     MTNL6.     Patni Computers7.     Tata Motors8.     VSNL9.     WIPRO

B.   GDRGDRs similar to the ADR but are  usually listed on exchanges outside the U.S., such as Luxembourg or London. Dividends are usually paid in U.S. dollars.The first GDR was issued in 1990.

1.     Global depositary receipts are certificates held in depository banks used to purchase shares of foreign companies; these receipts represent the number of shares owned in a particular company. (Depositary banks are international institutions whose purpose is to distribute and manage global depositary receipts.)

2.     The shares are typically traded as domestic shares, but are available for purchase globally.

3.     Corporations usually issue these kinds of depositary receipts to attract foreign investors.

4.     Global depositary receipts often are listed on various international stock exchanges, such as the London Stock Exchange, the Luxembourg Stock Exchange and the Frankfurt Stock Exchange.

5.     A global depositary receipt may equal many shares in a company or fractions of shares.

6.     The receipt's value is based on the market price of the shares. If the receipt is valued higher than a single stock, it would represent ownership of multiple stocks, for example. The receipts typically are priced to be competitive with market stock values.Advantages of GDR

1.     GDRs, like ADRs, allow investors to invest in foreign companies without worrying about foreign trading practices, different laws, or cross-border transactions.

2.     GDRs offer most of the same corporate rights, especially voting rights, to the holders of GDRs that investors of the underlying securities enjoy.

3.     Other benefits include Easier trading, the payment of dividends in the GDR currency, which is usually the United States dollar (USD)

4.     Corporate notifications, such as shareholders’ meetings and rights offerings, are in English.

5.     Another major benefit to GDRs is that institutional investors can buy them, even when they may be restricted by law or investment objective from buying shares of foreign companies.

6.     GDRs also overcome limits on restrictions on foreign ownership or the movement of capital that may be imposed by the country of the corporate issuer, avoids risky settlement procedures, and eliminates local or transfer taxes that would otherwise be due if the company’s shares were bought or sold directly.

7.     There are also no foreign custody fees, which can range from 10 to 35 basis points per year for foreign stock bought directly.

8.     GDRs are liquid because the supply and demand can be regulated by creating or canceling GDR shares.

9.     The main benefit to GDR issuance to the company is increased visibility in the target markets, which usually garners increased research coverage in the new markets; a larger and more diverse shareholder base; and the ability to raise more capital in international markets.Disadvantage of GDRsGDRs have foreign exchange risk if the currency of the issuer is different from the currency of the GDR, which is usually USD.

Companies that have issued GDRs:1.     Dr. Reddys2.     Bajaj Auto3.     HDFC Bank4.     Hindalco5.     ICICI Bank6.     Infosys Technologies

7.     ITC8.     L&T9.     MTNL10.                        Ranbaxy Laboratories11.                        State Bank of India12.                        VSNL13.                        WIPRO

C.   IDRs1.     An IDR is a mechanism that allows investors in India to invest in listed foreign companies, including

multinational companies, in Indian rupees.2.     IDRs give the holder the opportunity to hold an interest in equity shares in an overseas company.3.     IDRs are denominated in Indian Rupees and issued by a Domestic Depository in India.4.     They can be listed on any Indian stock exchange. In other words, what ADRs/GDRs are for investors

abroad with respect to Indian companies, IDRs are for Indian investors with respect to foreign companies.5.     Each IDR represents proportional ownership interest in a fixed number of underlying equity shares of the

issuer company. For example, in the recently concluded IDR issue of Standard Chartered Bank, 10 IDRs represent 1 equity share of the the Bank.

6.     The principal parties in the IDR issue are the issuer company, the Overseas Custodian, the Domestic Depository and the Registrar & Transfer Agent.

7.     Similar to an IPO in India, Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NII) like Corporate, high networth Individuals (HNIs) and Non-resident Indians, retail Individual Investors and employees can participate in IDR issue.

8.     An IDR holder is entitled to rights similar to an equity share holder like voting, bonus and right issues, dividends and other rights as other equity shareholders are eligible. In any case, rights and obligations of the IDR holders will be specified in the Deposit Agreement.

9.     Tax treatment on IDRsa.     Trading of IDRs- Securities transaction tax (STT) is not applicable on trading of IDRs and thus capital gain

transfer of IDRs will be applicable.b.    Dividends-The issuer company doesn’t pay dividend distribution tax and hence dividends received on

account of holding IDRs will be payable by IDR holders.

Advantages of IDRs:1.    For Indian Investors and Rightsa.    No resident Indian individual can hold more than $200,000 worth of foreign securities

purchased per year as per Indian foreign exchange regulations. However, this will not be applicable for IDRs which gives Indian residents the chance to invest in an Indian listed foreign entity.

b.    Additional key requisites for investing in foreign securities such as a securities trading account outside India to hold foreign securities, know your customer norms (KYC) with

foreign broker and foreign bank account to hold funds are generally too cumbersome for most Indian investors. Such requirements are avoided in holding IDRs.

c.    Whatever benefits accrue to the shares, by way of dividend, rights, splits or bonuses would be passed on to IDR holders also, to the extent permissible under Indian law. 

2.    For International Issuersa. It provides enhanced local branding and target business opportunities in India.

b. It gives access to the large Indian capital pool and creates opportunities for future fund raising.

c. It provides a currency for any acquisition in India which otherwise would be possible only through cash.

Disadvantages of IDRsThere is the possibility of IDR issues being undersubscribed if they are not well marketed or fail to catch the imagination of investors.  In addition, the challenges mentioned below are certain challenges with respect to the issuance of IDRs.

1.    Stringent eligibility norms: The stringent eligibility criteria, disclosure and corporate governance norms (Although in the investor’s interests, they compare unfavourably with listing norms on other tier II global exchanges such as Luxembourg, London’s Alternate Investment Market (AIM) and Dubai. This could result in higher compliance costs for companies seeking to tap the Indian capital markets).

2.    Voting Rights:  It is not entirely clear whether IDR holders will have voting rights or not – the SEBI guidelines do not specifically mention voting rights, it leaves that to the discretion of the issuer.

3.    Market:  Indian financial markets are still considered volatile and contain emerging market risk.

Companies that have issued IDRs:Standard Chartered PLC

D.   EDR1.    A European depositary receipt (EDR) is also known as a global depository receipt.2.    A European depositary receipt is a negotiable certificate meaning that either the price or

other terms of the agreement can be negotiated.3.    Another example of a negotiable certificate is that it can be transferred to another party in

lieu of a cash payment.4.    The European bank that is representing the securities to be traded will issue the European

depositary receipt, however, these receipts originate from outside the bank's country of origin.

5.    Banks and countries such as the USA use these receipts in order to attract the European investments.

6.    European depositary receipts can also be called Euro depositary notes but they do not have to be issued in European currency.

7.    The European depositary Receipt is the equivalent of an ADR or American depositary receipt in the USA.

8.    Investors in the European depositary receipt would be entitled to the same benefits as the investors in common shares in the same country.