adr gdr
TRANSCRIPT
What is DR?
DR means depository receipt of anything.
TYPES OF DR AVAILABLE IN MARKET
ADR GDR EDR / SDR IDR
DRs - what are they and how do they work?
Company - comply policies of stock exchanges
Investing directly - expensive, risky, problematic
Investing indirectly - DRs
Receipt - predefined number of shares
Listed on stock exchanges
ADR - Infosys
GDR - RIL
IDR
Mechanism for ADR, GDR and IDR
• ADR Programs formed in1927
Sponsered / Unsponsored shares
Level I
Level II (listed)
Level III (offering)
Restricted programs - 144-A and Regulation S
Comparison Level I & II
360° Perspective of ADR/GDR/IDR
• Investor Perspective
• Company Perspective
• Economy Perspective
Investor Perspective
• Global portfolio• Benefits of higher risk; higher return equities• Quoted and traded in U.S. Dollars• Settlement of trade as per US system (T+3)• Easy access to markets • Transparency• Lot of research on Co available in market• Tax efficient • Prompt dividend payments
Company Perspective
• Raise capital from international market.• Enlarged investor base.• Greater exposure & Share’s liquidity.• Boosting the company's prestige. • International shareholder base.• Stock-swap acquisition. • Costs of Cross Listing.• Reduce Volatility and cornering of share
Company Perspective
• Arbitrage opportunities
Buy DRSell local stock in India
Convert shares from DR to localDeliver shares
to stock exchange in
India
Deposit proceeds in Indian bank
account
Repatriate funds
Economy’s Perspective
• Coupling of global economies• Risks– Political Risk – Exchange Rate Risk– Inflationary Risk
• Impact on Company’s Valuation – Forex exposure• Policy Part
i. Capital Import Neutralityii. Capital Export Neutrality
Regulations: Issue of ADRs/GDRs by Indian Companies
Issue ADRs/GDRs if eligible in terms of the Scheme for Issue of FCCB and OS (Through DR) Scheme, 1993 and guidelines issued by MoF, GoI
Co. should not be ineligible to issue shares to non-resident persons in terms of the Foreign Exchange Management Act (FEMA)
Foreign investment - GDRs, ADRs - treated as FDI
No restriction on the number of GDRs/ADRs/FCCBs floated by a co. or a group of cos. in a financial year
No end use restrictions on GDR/ADR issue proceeds – except ban on ‐investment in real estate and stock markets
Two-way Fungibility Scheme of ADR/GDR/IDR
Registered broker in India can purchase shares of Indian co. on behalf of a person resident outside India to convert the shares so purchased into ADRs/GDRs
Purchase and re-conversion of shares which is equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market
Benefits of FungibilityImprovement in liquidity andElimination of arbitrage
ADRs & GDRs
Procedure for making IDR Issue
Cannot raise funds in India by issuing IDR without permission from the SEBI
Application seeking permission made to the SEBI at least 90 days prior to the opening date of the issue with a non-refundable fee of US $10,000
Issuing co. shall obtain necessary approvals/exemption from the appropriate authorities from the country of its incorporation under the relevant laws relating to issue of capital
Issuing co. shall appoint an overseas custodian bank, a domestic depository and a merchant banker for the purpose of issue of IDRs
CASE STUDY STAN CHART-IDR
• Stan Chart opened its offering to Indian investor on 25 May 10 with a price band of Rs 100/- to 115/-.
• Standard Chartered fixed its issue price for Indian Depository Receipts at Rs 104 per unit.
• Every 10 IDRs represents one share of the bank.• The IDRs opened at the Bombay Stock Exchange
and National Stock Exchange on June 11
CASE STUDY STAN CHART-IDR
• Standard Chartered PLC’s Indian Depository Receipt, listed at Rs 106, exceeded expectations by Rs 2 or 1.92 per cent on the National Stock Exchange.
• FUNGIBILITY ISSUES• The SEBI regulations and the RBI circular state that
automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying shares would be permitted only after the expiry of one year period from the date of issue of IDRs and subsequent to obtaining RBI approval on a case-by-case basis
CASE STUDY STAN CHART-IDR
• Two way FUNGIBILITY.• One way FUNGIBILITY.• SEBI VIEW POINT.• IDRs shall be deemed to be “infrequently
traded” if the annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than five percent of the listed IDRs, said SEBI.
• RIGHT ISSUE BY STAN CHART-IDR.
Who can Invest in IDRs???Indian CompaniesQualified Institutional BuyersNRI’s and FII’s with permission of RBI
The IssueThe minimum issue size is Rs. 50 crores90% of the issue must be subscribedAutomatic fungibility is not permitted