adr, gdr & idr anshul chaddha nilesh jain (26) fazeel kazi (29) prashant kokare (31) ajay patel...
TRANSCRIPT
ADR GDR amp IDRAnshul Chaddha
Nilesh Jain (26)
Fazeel Kazi (29)
Prashant Kokare (31)
Ajay Patel
Milind Walke
Vivek Dubey
India is hot these days ndash all major brokerages are of the opinion that India has a great long term potential and that investors in India would reap handsome benefits in the next 10 years
With 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 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 ndash and ADRs and GDRs are a great option
ADR stands for American Depository Receipt Similarly GDR stands for Global Depository Receipt Letrsquos understand these better
Every publicly traded company issues shares
These shares are sometimes also listed and traded on foreign stock exchanges
But to list on a foreign stock exchange the company has to comply with the policies of those stock exchanges
But many good companies get listed on these stock exchanges indirectly ndash using ADRs and GDRs
Depositary ReceiptGlobal Depository Receipt (GDR)American Deposit Receipt (ADR)
Foreign Currency Convertible Bond (FCCB)
Euro Medium Term Notes Program
A depository is like a bank wherein the deposits are securities (viz shares debentures bonds government securities units etc) in electronic form at the request of the shareholder through the medium of a Depository Participant
If an investor wants to utilize the services offered by a Depository the investor has to open an account with the Depository through a Depository Participant
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
India is hot these days ndash all major brokerages are of the opinion that India has a great long term potential and that investors in India would reap handsome benefits in the next 10 years
With 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 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 ndash and ADRs and GDRs are a great option
ADR stands for American Depository Receipt Similarly GDR stands for Global Depository Receipt Letrsquos understand these better
Every publicly traded company issues shares
These shares are sometimes also listed and traded on foreign stock exchanges
But to list on a foreign stock exchange the company has to comply with the policies of those stock exchanges
But many good companies get listed on these stock exchanges indirectly ndash using ADRs and GDRs
Depositary ReceiptGlobal Depository Receipt (GDR)American Deposit Receipt (ADR)
Foreign Currency Convertible Bond (FCCB)
Euro Medium Term Notes Program
A depository is like a bank wherein the deposits are securities (viz shares debentures bonds government securities units etc) in electronic form at the request of the shareholder through the medium of a Depository Participant
If an investor wants to utilize the services offered by a Depository the investor has to open an account with the Depository through a Depository Participant
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
ADR stands for American Depository Receipt Similarly GDR stands for Global Depository Receipt Letrsquos understand these better
Every publicly traded company issues shares
These shares are sometimes also listed and traded on foreign stock exchanges
But to list on a foreign stock exchange the company has to comply with the policies of those stock exchanges
But many good companies get listed on these stock exchanges indirectly ndash using ADRs and GDRs
Depositary ReceiptGlobal Depository Receipt (GDR)American Deposit Receipt (ADR)
Foreign Currency Convertible Bond (FCCB)
Euro Medium Term Notes Program
A depository is like a bank wherein the deposits are securities (viz shares debentures bonds government securities units etc) in electronic form at the request of the shareholder through the medium of a Depository Participant
If an investor wants to utilize the services offered by a Depository the investor has to open an account with the Depository through a Depository Participant
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Depositary ReceiptGlobal Depository Receipt (GDR)American Deposit Receipt (ADR)
Foreign Currency Convertible Bond (FCCB)
Euro Medium Term Notes Program
A depository is like a bank wherein the deposits are securities (viz shares debentures bonds government securities units etc) in electronic form at the request of the shareholder through the medium of a Depository Participant
If an investor wants to utilize the services offered by a Depository the investor has to open an account with the Depository through a Depository Participant
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
A depository is like a bank wherein the deposits are securities (viz shares debentures bonds government securities units etc) in electronic form at the request of the shareholder through the medium of a Depository Participant
If an investor wants to utilize the services offered by a Depository the investor has to open an account with the Depository through a Depository Participant
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
A Depositary Receipt is a negotiable security that represents an
ownership interest in securities of a foreign issuer typically trading outside
its home market
Depositary Receipts are created when a broker purchases a foreign
companys shares on its home stock market and delivers the shares to the
depositarys local custodian bank and then instructs the depositary
bank to issue Depositary Receipts
In addition Depositary Receipts may also be purchased in the secondary
trading market
They may trade freely just like any other security either on an exchange
or in the over-the-counter market and can be used to raise capital
ADRs were the first type of depositary receipt to evolve They were
introduced in 1927 in response to a law passed in Britain which
prohibited British companies from registering shares overseas without a
British-based transfer agent
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
ADR- American Depositary Receipts A negotiable certificate issued by a US bank Represents a specified number of shares of a foreign
company ADRs are denominated in US dollars Give Non-US companies access to the US capital
markets
GDR- Global Depositary Receipts A bank certificate issued in more than one country for
shares in a foreign company Offered for sale globally through the various bank
branches Shares trade as domestic shares Provide exposure to the global markets (except US)
outside the issuerrsquos home market
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Let us take Patni example ndash trades on the Indian stock at around Rs460-
This is equivalent to US$ 10 ndash assume for simplicity Now a US bank purchases 10000 shares of Patni and issues
them in US in the ratio of 101 This means 1 ADR purchased is worth 10 Patni shares Quick calculation means 1 ADR = US $100 Once ADR are priced and sold its subsequent price is
determined by supply and demand factors like any ordinary shares
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
DR Issuance ProcessDR Issuance Process
US Broker
Depository(JP Morgan NY)
India Broker
Local Custodian(JP Morgan Mumbai)
US Investor
17
2
3
4
5
6 SENSEX
Investor contacts broker and requests the purchase of shares of a DR issuer company If existing DRs of that company are not available the issuance process begins
To issue new DRs the broker contacts a local broker in the issuerrsquos home market
The local broker purchases ordinary shares on an exchange in the local market
Ordinary shares are deposited with a local custodian
The local custodian instructs the depositary to issue DRs that represent the shares received
The depositary issues DRs and delivers them in physical form or book entry form
The broker delivers DRs to the investor or credits the investorrsquos account
1
2
3
4
5
6
7
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
DR Cancellation ProcessDR Cancellation Process
DR Broker
Local Broker
Depository(JP Morgan NY)
Local Custodian(JP Morgan Mum)
US Investor
2
3
4
The investor instructs the broker to cancel DRs
The broker delivers the DRs to the depositary for cancellation
The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the sellerrsquos broker in the issuerrsquos home market
The local custodian delivers the underlying ordinary shares as instructed to the local broker The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor
1
2
3
4
1
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Indian companies can raise foreign currency resources abroad through the issue of ADRs GDRs in accordance with the Scheme for issue of FCCB and Ordinary Shares (Through DR Mechanism) Scheme 1993 and guidelines issued by the GoI
A company can issue ADRs GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme However an Indian listed company which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by SEBI will not be eligible to issue ADRsGDRs
Unlisted companies which have not yet accessed the ADRGDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments Unlisted companies which have already issued ADRsGDRs in the international market have to list in the domestic market on making profit or within 3 years of such issue of ADRsGDRs whichever is earlier
After the issue of ADRsGDRs the company has to file a return in Form DR as indicated in the RBI Notification
There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy sell or deal in securities by SEBI will not be eligible to subscribe to ADRs GDRs issued by Indian companies
The pricing of ADR GDR issues including sponsored ADRs GDRs should be made at a price determined under the provisions of the Scheme of issue of FCCB and Ordinary Shares 1993 and guidelines issued by the GoI and directions issued by RBI
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Issued by one depository appointed by the company under a Deposit Agreement or service contract
May be issued in different levels (level I II or III)
Company bears all expenses
New capital may also be raised under this option
Set up at the request of 3rd party without any formal agreement with company
Issued by one or more depositories in response to market demand
3rd party pays all set up and maintenance expenses
No new capital is raised
Types of DRs
Sponsored DRs Unsponsored DRs
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Level I ADR Over-the-Counter (OTC) Traded
Level I GDR Unlisted
Level II ADRUS Listed
Level II GDRInternationally Listed
Level III ADRUS Listed
Level III GDRInternationally Listed
Selling New Shares
(Capital Raising Transactions)
Existing Shares Only
(Non-Capital Raising Transactions)
Rule 144A - Rule 144A ADR or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A Under this program DRs are privately placed in the US to Qualified Institutional Buyers (QIBs)
Regulation S ndash Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S
Issuer
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Issuer Depository
At the time of offeringhellip Prepare documentation working
with advisors Interact with listing authority and
respond to all questions IR PR targeted program
Ongoinghellip Provide depositary and custodian
with notices of dividends rights offerings and other corporate actions including meeting notices
Ongoing compliance with stock exchange and international regulations including disclosure and reporting
Execute internationally-focused investor relations plan
Keeps market informed of developments through PRs
Regular meetings with institutional investors holding company DRs
At the time of offeringhellip Provide advice perspective on
type of program exchange or market on which to list or quote and advise on DR ratio
Appoint custodian Coordinate with all parties for
timely launch Coordinate with legal counsel on
Deposit Agreement and securities law
matters as appropriate Announce DR program to market
Ongoinghellip Coordinate with issuer to
announce and process corporate actions such as dividends and shareholdersrsquo meetings
Work with Issuer to maintain active DR program
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
At the time of offeringhellip Prepare (issuer counsel) andor
review (depositary counsel) offering circular and interact with authorities
Prepare draft deposit agreement (depositary bankrsquos counsel)
Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)
Ongoinghellip Manage compliance with
securities laws rules and regulations and perfect any securities law exemptions
Provide corporate action support whenever required
Legal Counsel
At the time of offeringhellip Advise on size pricing and
marketing of offering type of program to launch and exchange or market on which to list or quote and ratio of depositary shares to ordinary shares
Act as placement agent or underwriter in offering
Conduct road shows with management introduce issuer to institutional and other investors
Line up selected dealers and co-underwriters
Ongoinghellip Cover issuer through research
reports promote DRs to investors Advise on road shows invest or
meetings investors to target
I-Banks Underwriters
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
At the time of offeringhellip Receive local shares in issuerrsquos
home country and confirm receipt
Ongoinghellip Hold shares in custody for the
account of depositary Receive and deliver shares in
accordance with depositaryrsquos instructions
Custodian
At the time of offeringhellip Develop long-term plan to raise
awareness of issuerrsquos program in markets in which GDRs will trade
Develop communications plan and information materials for launch activities (road show and presentations to investors launch day promotion meetings with financial media)
Ongoinghellip Coordinate with issuerrsquos
advertising and public relations teams on specific program plans to support and develop company image
Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets
Arrange regular meetings for issuer with investors to keep them informed of developments results
Investor Relation Firm
At the time of offeringhellip Prepare companyrsquos accounts for
insertion into the prospectus Review prospectus and interact
with authorities
Ongoinghellip Audit and prepare accounts
Accountants
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Each DR is backed by a specific number of an Issuerrsquos local shares (or a fraction thereof) This is called the DR ratio
The ratio is designed to set the price of each DR in a price range that is competitive with the Issuerrsquos international peer group or the peer group on the exchange on which the DR trades
DRs are most commonly priced between $7 and $20
The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (eg $50) or if it falls substantially below $7
Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest
Note In case the DR ratio is unity then the depository receipts are also referred to as depository shares
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
The issuer must meet each of the following criteria determined on a worldwide basis
Pre-tax income of $100 million cumulative for the last 3 years
Minimum pre-tax income of $25 million in each of the 2 most recent years
In addition the issuer must meet either of the following two criteria Global market capitalization of $500 million
together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
25 million publicly held shares worldwide with a market value of $100 million
5000 round lot shareholders worldwide (holding units of 100 or more shares)
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Size and earningsThe issuer must meet one of the following
criteria 1048708 Aggregate pre-tax earnings of $10
million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years or
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year or
Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year
In addition the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs spin-offs carve-outs)
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
11 million publicly held shares (A) 2000 round lot shareholdersin the
US or (B) 2200 total shareholders together with average monthly trading volume of 100000 shares for the most recent 6 months or (C) 500 total shareholders together with average monthly trading volume of 1 million shares for the most recent 12 months
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Original listing fees Minimum of $150000 to maximum of $250000 based on the number of ADRs outstanding
Annual continuing fees Based on the number of ADRs outstanding subject to a minimum of $38000
The total fees that can be billed to an issuer in any calendar year are capped at $500000
These fees apply to both US and foreign listed companies
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
NASDAQ National Market Size amp Earnings The issuer must meet one of the
following 3 alternative criteria1 Stockholdersrsquo equity of at least $15
million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million or
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
2 Stockholdersrsquo equity of at least $30 million together with public float having a market value of $18 million or
3 Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Public float of 11 million shares with a minimum bid price of $5
Minimum of 400 round lot shareholders (each owning 100 shares or more)
Minimum of three market makers except thta four are required if alternative 3 under ldquoSize and earningsrdquo is utlizied
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Size and earningsThe issuer must meet one of the following
3 alternative criteria1 Stockholdersrsquo equity of at least $5
million or2 $50 million in market value of listed
securities or3 $750000 in net income from
continuing operations in latest fiscal year or in two of the last three fiscal years
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Public float of at least 1 million shares having a market value of $5 million and a minimum bid price of $4 in addition for ADR listings at least 100000 ADRs must be issued
Minimum of 300 round lot shareholders (each owning 100 or more shares)
Minimum of three market makers
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding
Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
One way Fungibility Conversion of ADRGDR into shares of
Indian Company After conversion it was not possible for
reconversion of shares into ADRGDR
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Two way Fungibility Two-way Fungibility of ADRsGDRs issued
by Indian Companies was permitted by the Government of India and the RBI
The present rules of the RBI make such reconversion possible to the extent of ADR GDR which have been converted into equity shares and sold in the local market
Two-way fungibility implies that an investor who holds ADRsGDRs can cancel them with the depository and sell the underlying shares in the market The company can then issue fresh ADRs to the extent of shares cancelled
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Funjability Continuehellip This would take place in the following
manner
Stock Brokers in India have been authorized to purchase shares of Indian Companies for reconversion
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached
The Domestic Custodian would then inform the Overseas Depository to issue ADR GDR to the overseas Investor
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Improvement in Liquidity Elimination of arbitrage
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
The issuing company intimates the depository when the dividend record and payment dates for the underlying shares is established
The Depositary will Set a DR record date amp payment date and communicate these dates to
markets Announce preliminary (estimated) dividend payment rates based upon
the exchange rate between the domestic currency and the currency of DR on the date of the announcement
On the dividend payment date in the home market the custodian receives the dividend owed on the underlying shares The depositary will then arrange for the dividend received to be converted from domestic currency into currency of DR
Distribute the net dividend amount net of any required tax withholding and any fees to the DR holders entitled thereto
As the DR investor carries the foreign currency risk the amount of the dividend will affected by any movement of the currency of DR against the home market currency
In case of a stock dividend additional DRs are distributed to DR holders
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
DR holders have no direct voting rights on the shares underlying
the DRs
In case the issuer gives its DR holders the right to vote in
shareholdersrsquo meeting it instructs the depository to initiate the
DR proxy process
Depository (complying with the applicable legal provisions)
establishes the record date mailing date and voting cut-off date
Depository informs key dates to issuer and local custodian bank
(LCB)
Issuer provides depository with draft of agenda items amp company
notice
Depository provides draft of depository notice of meeting and
voting card to issuing company for review Upon approval
depository arranges for final voting packages to be prepared and
mailed to DR holders
DR holders review the voting materials amp submit their votes to
depository
Depository tabulates the DR holdersrsquo votes amp sends to issuer and
LCB
LCB forwards the results to the companyrsquos registrar or attends
the shareholdersrsquo meeting to vote accordingly
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
bull Transferability of the Underlying Shares amp GDRs The shares underlying the GDRs as well as GDRs itself must be freely transferable fully paid and free from any liens amp restrictions on transfer
bull Free float requirement 25 of the GDRs must be in public hands This 25 should not include any investor taking more than 5
bull Admission to trading on a Recognized Stock Exchange
bull Market capitalization The expected aggregate market value of all GDRs to be listed must be at least pound700000 The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned
bull Continuing obligations Various ongoing obligations on the part of issuing company include
bull Publication of an annual financial report within four months of its year end
bull Publication of price sensitive information to enable investors to trade in a knowledgeable manner
These are specifically applicable to companies seeking to list its GDRs on LSE
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
A prospectus is the companyrsquos information and sales document which
enables market participants to create opinions and decide whether to
participate in the offering
A DR prospectus must include the necessary information that enables
investors to make an informed assessment of
the assets and liabilities financial position profits and losses and prospects of
the Company and
the rights attached to the DRs
An operating and financial review audited financial information for the last
three financial years or such shorter period as the Company has been in
operation In case the prospectus is more than nine months after the end
of last financial year unaudited half year accounts will also be included
The prospectus also requires details of any material contracts
Prospectus should also include a summary describing the Company that
includes any risks associated with investing in the Company
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Offer a new avenue for raising equity capital outside the issuerrsquos
home market
Broaden and diversify a companyrsquos investor base
Establishincrease total global issuer liquidity by attracting new
investors
Enhance a companyrsquos visibility status and profile internationally
among institutional investors
Develop andor increase research coverage outside the home
market
Get an international valuation as the Company is valued alongside
its peer group
Adjust share price levels to those of peers through DR Ratio
Facilitate MampA activity through use as acquisition currency
Expand opportunity to increase local share price as a result of
global demandtrading
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Facilitate diversification into securities of foreign issuers
Represent a way to provide international exposure for institutional
investors (mutual funds pension funds) despite restrictions against
investing in certain countries or in foreign investment instruments
Easier to purchase and to hold than the issuerrsquos underlying ordinary
shares
Trade easily and conveniently in US dollars and settle through
established clearinghouses
Ability to acquire the underlying securities directly upon cancellation
(two-way fungibility)
Create accessibility of price trading information and research
Provide dividend payments in US dollars and corporate action
(meetings of shareholders rights offerings exchange offers tender
offers etc) notifications in English
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
COMPANY ADR GDR Bajaj Auto No YesDr Reddys Yes YesHDFC Bank Yes YesHindalco No YesICICI Bank Yes YesInfosys Technologies Yes YesITC No YesL amp T No YesMTNL Yes YesPatni Computers Yes NoRanbaxy Laboratories No YesTata Motors Yes NoState Bank of India No YesVSNL Yes YesWIPRO Yes Yes
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Through an ADR companies can only tap the American markets while GDRs give the companies more flexibility in terms of markets
European markets are more liberal than the American markets
Companies get more flexibility in terms of currencies as well
Companies here want to capitalise on foreign investor interest as much as possible
The need of Indian corporates for funds is so huge and with debt being very expensive
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Tata Steel raised $500 million while Suzlon raised $1084 million through
146 million GDRs and Tata Power has raised $335 million
through the GDR route
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Indian Depository Receipts (IDRs) the Indian counterparts of ADRs or GDRs were introduced in 2004 stipulated in the Companies (Issue of Indian Depository Receipts) Rules 2004 IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company
In the year 2000 Section 605 A of the Companies Act 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
605A Offer of Indian Depository ReceiptsNotwithstanding anything contained in any other law for the time being in force the Central Government may make rules applicable for-(a) the offer of Indian Depository Receipts
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts
(c) the manner in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters
(d) the manner of sale transfer or transmission of Indian Depository Receiptsby a company incorporated or to be incorporated outside India whether the company has or has not been established or will not establish any place of business in India]
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
The second step was taken in 2004 when the Indian Depository Receipt rules were framedFinally SEBI has taken the third step on April 3rd 2006 in the back drop of the Indian stock exchanges boom by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying sharesIssuers Eligibility CriteriaMust have an average turn over of US$ 500 million during the previous 3 financial yearsMust have capital and free reserves which must aggregate to atleast US$100 millionMust be making a profit for the previous 5 years and must have declared a dividend of 10 in each such yearThe pre issue debt-equity ratio must be not more than 21Must be listed in its home countryMust not be prohibited by any regulatory body to issue securitiesMust have a good track record with compliance with securities market regulationsMust comply with any additional criteria set by SEBI
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Who can InvestIndian CompaniesQualified Institutional BuyersNRIrsquos and FIIrsquos with permission of the Reserve Bank Of IndiaThe IssueThe minimum issue size is Rs 50 crores90 of the issue must be subscribedAutomatic fungibility is not permittedThe following conditions would also applyIn one financial year the market cap cannot exceed 15 of the paid up capital and free reserves of the issuerRedemption into underlying shares is prohibited for 1 year beginning the issue dateRepatriation of proceeds is subject to Indian foreign exchange laws prevailing at time of repatriationThe issue must be in rupeesThe issuer is subject to Clause 49 of the listing agreement
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
An IDR holder will be entitled to rights on an equitable basis vis-agrave-vis the rights of shareholders of the issuer company in its home country
Some of the rights of the IDR holders include minus Voting minus Entitlement to bonus issues minus Entitlement to dividends minus Participation in rights issues minus Participation in sub-divisions and
consolidations of underlying equity shares minus Participation in other distributions and
corporate actions
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
Listed on the Stock Exchanges Allotted to investors in demat form Will be traded in demat form The trading and settlement process of IDRs is
like that of equity shares of Indian companies Can convert IDRs into underlying equity shares
only after 1 year and with the prior approval of the RBI
Upon such conversion resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion
Conversion of equity shares into IDRs is not permitted under current regulations ie reverse fungibility is not allowed
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
There will be a small charge payable by IDR holders for the services provided by the Domestic Depository and the Overseas Custodian
Similar charges are payable by holders of ADRs and GDRs of Indian companies for depositary and custody services
Secondary trading of IDRs are not subject to Securities Transaction Tax (ldquoSTTrdquo) and hence capital gains tax will be applicable on any trading profits
Dividend distribution tax is not payable by the issuer company and hence such tax will be payable by the IDR holders
The Direct Taxes Code (ldquoDTCrdquo) as currently drafted does not distinguish between capital gains tax treatment of listed shares and other assets such as IDRs so if the DTC is implemented in its present form there will be parity of treatment As the DTC has not yet been implemented the provisions summarised above could change
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
The issue opened for subscription by investors on May 25 2010 and closed on May 28 2010 subscribed 220 timesThe company came out with 240000000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36000000 IDRs) at a price range of Rs 100 to Rs 115 through 100 Book Building processThe issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 220 times The issue has received bids for 14507200 IDRs at cut-off priceUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issueJM Financial Consultants Private Limited DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issueStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issueJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issueKarvy Computershare Private Limited is the registar to the companyThe market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs The Maximum Subscription Amount for Retail Investor was Rs100000
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc
The details of the Issue Subscription are given below
Category Shares offered
Shares Bid
Subscription ratio
QIB 84000000 348394400 41476
NII 43200000 82150400 19016
Retail 72000000 18210200 02529
Employee 4800000 950000 01979
Total 204000000
449705000
220
1 wwwrbiorgin
2 wwwicwaiorg
3 wwwsebigovin
4 wwwnirmalbangcom
5 httpknolgooglecomkadr-gdr-fccb-issues-indian-regulations
6 httpwwwbourselucontenudocscommunsocieteEvents2008Listing_abroad_when_offer_meets_demandpdf
7 httpwwwwikinvestcomstockHDFC_Bank_LTD_Ads_(HDB)Fungibility20Adrstoc