Download - ADR & GDR
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ADR & GDR
Presented Bymanish gupta
2nd yr. student PGPBM Finance (2009-2011)
Kohinoor business school, khandala, pune
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Depository Receipts (DR)
Is a type of negotiable instrument (transferable)
financial security.
allows investors to hold shares in equity of other
countries.
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What is ADR ?
•
ADR- American Depositary Receipts
• ADR is a negotiable US certificate ownership of shares in an non-US
corporation. It is quoted and traded in US dollars in US securities
market and dividends are paid to investors in US dollars.
• ADR is specifically designed to facilitate purchase, holding and sale of
non-US securities by US investor and to provide corporate finance
vehicle for non-US companies.
Domestic
Stock
Exchange
U.S
certificate
ADR
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ADR RECEIPT
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Some more points about ADRs
• ADRs were first introduced in 1927.
• The stock of many non-US companies, trade on
US exchanges through the use of ADRs.
• ADRs enable US investors to buy shares in
foreign companies without undertaking cross-
border transactions.
• The shares of the non-US corporation trade on a
non-US exchange, while the ADRs trade on a US
exchange.
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ADR Ratio
• Single
1 ADR = 1 SHARE
ADR Ratio = 1:1
• Multiple
1 ADR = 5 SHARES
ADR Ratio = 1:5
• Fraction
1 ADR = ½ SHARE
ADR Ratio = 2:1
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How does ADR/GDR work ?
• Suppose price of Infosys share in stock market is
around Rs. 2000.
• Lets $1= Rs 40, assume for simplicity.
• Then US bank purchase 10000 shares of Infosys ,
and issued ADR at ratio of 10:1.
• It means 1 ADR= 10 shares, 1 ADR= Rs 400.
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ADR
TYPES of ADR : ADR listing :
• Unsponsored ADR NASDAQ
• Sponsored ADR AMEX
Level 1 NYSE
Level 2
Level 3
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Benefits of ADR
• TO COMPANIES:
Broadening and diversifying a company US’s
investor base.
Enhancing company visibility, status and profile in the
US and internationally among investors.
Offers a new source of raising equity capital, often at
highly competitive rates.
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Benefits of ADR contd…….
• TO INVESTORS:
Convenient to purchase and hold a non-US issuer
securities.
Opportunities to invest and earn in US Dollars.
Diversifying portfolio.
Invest in high growth economies.
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Disadvantages of ADR
• ADR cannot be exchanged with its home
market security.
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Participants in ADR Market
Brokers
Accountants
Investment
Banker Lawyers Investment
Relations Firm
Custodian
Depository
Issuer
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GDR – Global Depositary
Receipts
• A negotiable certificate held in the bank of one country
representing a specific number of shares of a stock
traded on an exchange of another country.
• To raise money in more than one market, some
corporations use GDRs to sell their stock on markets in
countries other than the one where they have their
headquarters.
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Objective of GDR
• Enable investors in diversifying their funds in
international securities.
Factors effecting GDRs prices:
• company track record
• analysts recommendations
• market conditions
• international status of the company
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GDR Listing
• London Stock Exchange
• Luxembourg Stock Exchange
• DIFX
• Singapore Exchange
• Hong Kong Exchange
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Advantages of GDRs
• Shareholder wealth maximization.
• allow investors to invest in foreign companies
without worrying about foreign trading practices,
laws.
Disadvantage of GDRs:
• GDR have foreign exchange risk i.e. currency of issuer is
different from currency of GDR.
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India- ADR and GDR
• ADRs and GDRs are an excellent means of
investment for NRIs and foreign nationals wanting to
invest in India.
• By buying these, they can invest directly in Indian
companies without going through the hassle of
understanding the rules and working of the Indian
financial market – since ADRs and GDRs are traded
like any other stock.
• NRIs and foreigners can buy these using their regular
equity trading accounts.
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Indian Companies using ADR/GDR
• Some of them are:
• Bajaj Auto
• Dr. Reddy’s
• HDFC Bank.
• Hindalco.
• ICICI Bank
• Infosys
• ITC
• L & T
• Wipro
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References
• www.google.com
• www.wikipedia.com
• www.investopedia.com
• www.businessfinance.com
• www.icai.org