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