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d49fadr, Gdr, And Idr

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    AMERICAN DEPOSITORY

    RECEIPTS

    Saranya Gopinath P

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    WHAT IS ADR?

    An American DepositoryReceipt is a negotiable securitythat represents the underlying

    securities of a non U.S company inthe U.S financial market.

    Individual shares of the securities ofthe foreign company represented byan ADR called American Depository

    Shares [ ADS]

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    HISTORY OF ADR

    The first ADR was introduced by J.P.Morgan in 1927 for the British retailerSelfridges.

    Depositary Receipts (DRs) werecreated in 1927, primarily tocircumvent the difficulties associated

    with different currencies in theforei n market

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    With ADRs, however, investors cantake advantage of foreign marketswhile trading in U.S stock markets.

    Since each ADR represents a share or

    shares of the foreign company, theprice of the ADR changes with theprice of the foreign stock.

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    Benefits to companies

    Broadening and diversifying acompanys U.S investor base.

    Enhancing a companys visibility,

    status and profile in the US andinternationally among the investors.

    Offers a new avenue for raising

    equity capital often at highly

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    Benefits to investors

    Convenient to purchase and hold anon US issuers securities.

    Opportunity to invest and earn in US

    dollars. Diversifying portfolio.

    Invest in high growth economics

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    WORKING OF ADR MARKET

    Sponsored ADR program

    INVESTOR

    USEXCHANGE

    BROKE/

    DEALER

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    3 LEVELS OF SPONSOREDPROGRAMS

    Under the sponsored program thereare 3 levels and they are ;

    Level 1- Level 1 depositary receiptsare the lowest level of sponsored

    ADRs that can be issued. When acompany issues sponsored ADRs, ithas one designated depositary whoalso acts as its transfer agent.

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    Level 2 depositary receipt programsare more complicated for a foreigncompany. When a foreign company

    wants to set up a Level 2 program, itmust file a registration statementwith the U.S. SEC and is under SEC

    regulation.

    The advantage that the company has

    by upgrading their program to Level

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    A Level 3 American DepositaryReceipt program is the highest levela foreign company can sponsor.

    Because of this distinction, thecompany is required to adhere tostricter rules that are similar to those

    followed by U.S. companies.

    Foreign companies with Level 3

    programs will often issue materials

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    UNSPONSORED ADRPROGRAM

    Unsponsored shares trade on theover-the-counter (OTC) market.

    These shares are issued in

    accordance with market demand,and the foreign company has noformal agreement with a depositary

    bank

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    INDIAN DEPOSITORY

    RECEIPTS

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    An Indian Depository Receipt isan instrument denominated in IndianRupees in the form of a depository

    receipt created by a DomesticDepository (custodian of securitiesregistered with the Securities and

    Exchange Board of India) against theunderlying equity of issuing companyto enable foreign companies to raisefunds from the Indian securitiesMarkets.

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    The foreign company IDRs willdeposit shares to an Indiandepository.

    The depository would issue receiptsto investors in India against theseshares.

    The benefit of the underlying shares

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    Standard Chartered PLC became thefirst global company to file for anissue of Indian depository receipts in

    India.

    Rules (principal rules) wereoperationalised by the Securities andExchange Board of India(SEBI)theIndian markets regulator in 2006.

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    ELIGIBILITIES FOR ISSUINGIDR

    It has net tangible assets of at leastIndian Rupee three core in each ofthe preceding three full years (of

    twelve months each), of which notmore than fifty per cent are held inmonetary assets

    It has a track record of distributableprofits in terms of section 205 of the

    Companies Act, 1956, for at least

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    It has a net worth of at least onecore in each of the preceding threefull years

    The aggregate of the proposed issueand all previous issues made in thesame financial year in terms of issuesize does not exceed five times itspre-issue net worth as per the

    audited balance sheet of the

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    the issuing company is listed in itshome country

    the issuing company is not prohibitedto issue securities by any regulatorybody

    the issuing company has track record

    of compliance with securities market

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    PROCESS OF ISSUING IDR

    The process is similar to an IPOwhere a draft prospectus is filed withthe SEBI.

    The minimum issue size is $500million (around Rs 2,250 core).

    Shares underlying IDRs will be

    deposited with an overseas custodian

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    BENEFIT TO KEY HOLDERS

    To Foreign companies:

    A company which has significantbusiness in India can increase itsvalue through IDRs by breaking downmarket segmentations, reachingtrapped pools of liquidity, achieving

    global benchmark valuation,accessing international shareholderbase and improving its brand's

    presence through global visibility

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    To Investors:

    IDRs can lead to better portfoliomanagement and diversification forinvestors by giving them a chance tobuy into the stocks of reputedcompanies abroad.

    To Employees:

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    To Regulator:

    IDRs will lead to more liquid capitalmarkets and a continuousimprovement in regulatoryenvironment, thereby increasingtransactional revenues for theregulator

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    GLOBAL DEPOSITORY

    RECEIPTS

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    A Global Depository Receipt orGlobal Depositary Receipt (GDR)is a certificate issued by a depository

    bank, which purchases shares offoreign companies and deposits it onthe account.

    GDRs represent ownership of anunderlying number of shares

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    Several international banks issueGDRs, such as JPMorgan Chase,Citigroup, Deutsche Bank, Bank of

    New York.

    GDRs are often listed in theFrankfurt Stock Exchange,Luxembourg Stock Exchange and inthe London Stock Exchange, where

    they are traded on the International

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    PROCEDURE FOR THE ISSUEOF GDR

    APPROVALSThe issue of GDR require approvals of board

    of directors, shareholders and otherregulatory authorities and financial

    institutions

    APPOINTMENT OF INTERMEDIARIES

    GDR normally involve a number ofintermediaries including lead manager , core

    manager, legal advisor, legal agent

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    PRINCIPAL DOCUMENATAIONThe principle documents required to beprepared include subscription agreement

    depository agreement, custodianagreement and trust deed

    PRE AND POST LAUNCH

    Apart from obtaining necessaryapprovals , documentation, additional keyactions necessary for making the issue ofGDR a success include timing, pricing and

    size of issue

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    WHICH INDIAN COMPANIESHAVE GDR AND ADR

    COMPANY ADR GDR

    Bajaj auto NO YES

    Dr. Reddys YES YES

    HDFC bank YES YES

    ICICI bank YES YES

    ITC NO YES

    L&T NO YES

    MTNL YES YES

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    COMPANY ADR GDR

    Hindalco NO YES

    Infosys technologies YES YES

    Tata motors YES NO

    Patni computers YES NO

    State bank of India NO YES

    Wipro YES YES

    VSNL YES YES

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    STOCK EXCHANGESTRADING GDR ARE:

    London stock exchange

    Singapore stock exchange

    Dubai international financial

    exchange

    Luxemburg stock exchange

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