Lokesh Dodani – 32Sunil Gyanchandani – 42

Tripti Kochar – 52Mukul Ahuja – 05

Akshay Aggarwal – 03Manish Mahajan – 59

Ritika Gupta – 41

Depository ReceiptADR - American Depositary Receipt

An  ADR represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets.

Advanced Financial Management 2

GDR - Global Depositary Receipt

GDR is a certificate issued by a depository bank, which purchases shares of foreign companies.

Advanced Financial Management 3

ISSUER INVESTOR

Attractive pricing Diversification

No foreign exchange fluctuations

Negotiable instrument free from investment restrictions

Granting ESOPs Investment opportunities & Less obstacles

Less monitoring Trading information and research

Enhances image of company globally.

Prompt dividend payment in dollars

GDR

Centre – NYSE Disclosure – Requires

Comprehensive Disclosure.

GAAP – Company accounts must be reconciled to US GAAP.

Cost – Comparatively higher.

Retail – US retail market can be accessed.

Liability – Legal liability is more.

Centre – LSE Disclosure – Only

Detailed Information Required.

GAAP – Satisfied with Statement of difference between the A/c Standards.

Cost – Comparatively lower.

Retail – Only QIBs allowed in US.

Liability – Comparatively less than ADR.

Advanced Financial Management 5

ADR

Lead managerCo-managerOverseas

Depository BanksDomestic

Custodian Bank

Listing agentLegal advisorsPrintersAuditorsUnderwriters

5Company issues Ordinary Shares

Kept with Domestic Custodian

Transferred to the Overseas Depository Bank

ADR’s /GDR’s are issued by ODB

Receipts given to the foreign investors

Appoint Listing Agent / Lead manger

Due DiligenceRequired financial

statements

PositioningValuation

Deal Structure

Prepare prospectus Presentation material and Q & A practice

Apply for listing & regulatory approval

through listing agent

Analyst Meeting

Premarketing to Institutions

Road shows & marketing to investors

List on Eurolist , Start trading

Types of ADRs

Unsponsored Sponsored

Level I Private placementLevel II Level III

Created in response of investors, brokers - dealers and depository.

Exempted from reporting requirements of the SEC.

Not Listed on any exchange.Advantages: Inexpensive. Expands investors base. Minimal SEC compliance

and reporting requirements.

Disadvantages: No control over

the activity. Conversion

becomes costly.

Initiated by Issuer.

Established jointly by an Issuer and

Depository.

Agreement between Issuer and Depository.

Depository provides shareholders

communication and other information to ADR

holders.

Through Depository ADR holders can exercise

voting rights.

Level I Level II Level III

Least Expensive More ExpensiveMost Expensive

Minimal SEC registration &reporting requirements.

Full SEC registration & reporting requirements.

SEC reporting is more detailed than Level II.

Cannot be listed on National exchange of US.

Listed on National exchange of US.

Listed on National exchange of US.

Capital Raising is not permitted.

Capital Raising is not permitted.

Capital can be raised through Public offering.

Capital can be raised by placing Depositary

Receipts with large institutional investors.

Do not have to conform full SEC reporting

and registration requirements.

Cheaper means of raising equity capital.

Can only be sold to QIBs.

Fungibility = Interchangeability of any security

One way Two way

Improvement in Liquidity

Elimination of Arbitrage.

Dividend will be taxed @10 % All transactions of trading of the GDRs outside

India, among non-resident investors, will be free from any liability of income tax in India.

Capital gains arising on the redemption of shares will be liable to income tax Section 115AC.

Long-term capital gains tax @ 10 % Short-term capital gains tax@ 15 % (Section 195 and 196 of IT Act).

17Advanced Financial Management

Eligibility of the issuer Eligibility of the subscriber

Approval of Board of Directors

Approval of shareholders

Listing requirements Approval of FIPB

Pricing Reporting requirements of RBI

Issue expenses Companies Act

Private Sector Banking 74% Drugs & Pharmaceuticals 100%

Non-Banking Financial Companies

100% Road and highways, Ports and harbours

100%

Insurance 26% Hotel & Tourism 100%

Telecommunications Services

74% Mining 74-100%

Petroleum Refining-Private Sector

100% Advertising 100%

Housing and Real Estate 100% Films 100%

Trading 51-100% Airports 74%

Coal & Lignite 50-100% Mass Rapid Transport Systems

100%

Power 100% Pollution Control & Mng. 100%

Air transport Services (no foreign airlines)

100% -NRIs, 49% others

Special Economic Zones 100%

Advanced Financial Management 20