Depositary Receipts

Presented by Rajesh Kumar MBA(Finance) ACS AIII

Depositary 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

Depositary Receipt 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

bull DRs are traded on Stock Exchanges in the US Singapore Luxembourg London etc

bull DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs) In Indian context DRs are treated as FDI

INTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKET

EURO BOND FOREIGN BOND ADRGDR

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Depositary 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

Depositary Receipt 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

bull DRs are traded on Stock Exchanges in the US Singapore Luxembourg London etc

bull DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs) In Indian context DRs are treated as FDI

INTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKET

EURO BOND FOREIGN BOND ADRGDR

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Depositary Receipt 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

bull DRs are traded on Stock Exchanges in the US Singapore Luxembourg London etc

bull DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs) In Indian context DRs are treated as FDI

INTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKET

EURO BOND FOREIGN BOND ADRGDR

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

bull DRs are traded on Stock Exchanges in the US Singapore Luxembourg London etc

bull DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs) In Indian context DRs are treated as FDI

INTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKET

EURO BOND FOREIGN BOND ADRGDR

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

INTERNATIONAL CAPITAL MARKET

INTERNATIONAL EQUITY MARKETINTERNATIONAL BOND MARKET

EURO BOND FOREIGN BOND ADRGDR

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

TYPES OF DRSTYPES OF 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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

LEVELS OF DRSLEVELS OF DRS

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

AMERICAN DEPOSITORY RECEIPTS

bull ADR is a dollar-denominated negotiable certificate It represents a non-US companyrsquos publicly traded equity It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets

bull ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Levels of ADR

bull Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued When a company issues sponsored ADRs it has one designated depositary who also acts as its transfer agent

bull Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the US Securities and Exchange Commission [SEC]

bull Level 2- Level 2 depositary receipt programs are more complicated for a foreign company When a foreign company wants to set up a Level 2 program it must file a registration statement with the US SEC and is under SEC regulation

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

bull The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a US stock exchange These exchanges include the New York Stock Exchange (NYSE) NASDAQ and the American Stock Exchange (AMEX)

bull Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor Because of this distinction the company is required to adhere to stricter rules that are similar to those followed by US companies

bull Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their US shareholders because they rely on them for capital

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

What is a GDR

bull It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Eligibility for Issue of GDRs

bull An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs) Regulation 4 of Schedule I of FEMA Notification no 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

DIFFERNCE BETWEEN ADR amp GDRADR GDR

American depository receipt (ADR) is compulsory for non ndashus companies to trade in stock market of USA

Global depository receipt (GDR) is compulsory for foreign company to access in any other countryrsquos share market for dealing in stock

ADRs can get from level 1 to level III

GDRs are already equal to high preference receipt of level II and level III

ADRs up to level ndashI need to accept only general condition of SEC of USA

GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA

ADR is only negotiable in USA GDR is negotiable instrument all over the world

Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ

Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

ADVANTAGES OF ADRGDR

bull Can be listed on any of the overseas stock exchanges OTCBook entry transfer system

bull Freely transferable by non-residentbull They can be redeemed by ODBbull The ODB should request DCB to get the

corresponding underlying shares released in favor of non resident of investors (Shareholders of issuing companies)

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Benefits to the Company

bull Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity which may increase or stabilize the share price

bull Enhanced visibility and image for the companyrsquos products services and financial instruments in a marketplace outside its home country

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Company Benefits (contrsquod)

bull Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions

bull Enables employees of US subsidiaries of non-US companies to invest more easily in the parent company

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Benefits to the Investor

bull Quotation in US dollars and payment of dividends or interest in US dollars (or in general a persons home currency)

bull Diversification without many of the obstacles that mutual funds pension funds and other institutions may have in purchasing and holding securities outside of their local market

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Investor Benefits (contrsquod)

bull Elimination of global custodian safekeeping charges potentially saving Depositary Receipt investors up to 10 to 40 basis points annually

bull Familiar trade clearance and settlement procedures

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Investor Benefits (contrsquod)

bull Competitive US dollarforeign exchange rate conversion for dividends and other cash distributions

bull Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conditions for Issue of GDRsbull The GDRs are issued in accordance with the Scheme

for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 and guidelines issued by the Central Government thereunder from time to time

bull A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No14 (1997 series) dated 8th October 1997 issued by the Government of India Ministry of Industry

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conditions for Issue of GDRs contdhellip

bull The company not covered under the Automatic route would need to obtain prior Government clearance through FIPB

bull There are no end-use restrictions on GDRADR issue proceeds except for an express ban on investment in real estate and stock markets

bull There is no limit up to which an Indian company can raise GDRs

bull There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conditions for Issue of GDRs contdhellip

bull Indian Companies engaged in the following sectors were 80 of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-ResidentResident Permanent Employees and also to their subsidiary Companies

a Information Technology and Entertainment Software

b Pharmaceuticals cBio Technology

bull These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conditions for Issue of GDRs contdhellip

bull GDR can be issued in any convertible foreign currency

bull The GDRs and the Shares to be represented by such GDRs will not be offered sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933 as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue

bull The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to or for the account or benefit of any resident of India

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Agencies Involved in the GDR Issuebull Lead Manager -The firm should be registered with the

appropriate regulatory authority in Europe Singapore or Japan

bull Depository ndash Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs

bull Listing Agent - Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges Generally the Depository also acts as the Listing Agent

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Agencies Involved in the GDR Issue contdhellip

bull Custodian - It is the domestic Bank who holds the underlying shares Bonds Issued against the GDRs

bull Indian Legal Counsel - It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager It also assists the Company in preparation of the Information Memorandum offer document for submitting it with the Overseas Stock Exchange

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Agencies Involved in the GDR Issue contdhellip

bull UK Counsel - An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement Subscription Agreement and vet the Information Memorandum (IM)

bull Escrow Agent - An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRsbull Convene a Board Meeting to approve the proposed GDR

Issue for not exceeding certain value in foreign currencybull Convene the EGM for the approval of the shareholders for

the proposed GDR Issue under Sec 81(1A) of the Companies Act 1956

bull Identify the Agenciesbull Convene a Board Meeting to approve the Agenciesbull Appoint the Agencies and sign the Engagement Lettersbull The Indian Legal Counsel to undertake the Due Diligence

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon

bull Prepare the 2nd3rd draft of IM incorporating the commentsbull The Listing Agent to submit the IM with the overseas Stock

Exchange for their comments and In principle Listing Approval

bull Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Companyrsquos shares are listed for In principle approval for listing of the underlying shares

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull Hold Board Meeting to approve the Deposit Agreement Subscription Agreement and the Escrow Agreement

bull On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing

bull The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement

bull In consultation with the Lead Manager to finalize - whether the GDR will be through public or a private

placement- the number of GDRs to be issued- the issue price (the Issue price is normally 5-10 discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue- number of underlying shares to be issued against each GDR

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull On the day of the opening of the Issue execute the Deposit and Subscription Agreements

bull The Issue should be kept open for a minimum period of 3 working days

bull Immediately on closing of the Issue convene a Board Committee Meeting for allotment of the underlying shares against the Issue of the GDRs

bull Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange

bull After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Companyrsquos Account

bull The Company can either remit the entire funds or in part as per its discretion

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Procedure for Issue of GDRs contdhellip

bull On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository ie NSDL and CDSL

bull Obtain Trading approval

bull Intimate the Custodian for converting the physical shares into Demat

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Other Reporting Compliances and Issues

bull Within 30 days of the closing of the GDR issue details of the GDR Issue along with the IM should be submitted to

- the Ministry of Finance - the Registrar of Companies- SEBI

bull Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment

bull Annexure C is to be filed with RBI Central office within 30 days of closure of the GDR Issue

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Other Reporting Compliances and Issues

bull The Company should furnish quarterly return in Annexure D to the RBI Central office for every calendar quarter

bull The Issue related expenses (covering both fixed expenses like underwriting commissions lead managers charges legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4 in the case of GDR

bull The GDR holders shall not have any voting rights

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conversion and Transfer of GDRsbull The holder of the GDR can transfersell the GDR in the

Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account

bull On acquiring the shares the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges

bull A registered broker in India may with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Conversion and Transfer of GDRs contdhellip

bull the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Issuer Depository

At the time of offeringhellip Prepare documentation working

with advisors Interact with listing authority and

respond to all questions IR PR targeted programOngoinghellip 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 marketOngoinghellip Coordinate with issuer to

announce and process corporate actions such as dividends and shareholdersrsquo meetings

Work with Issuer to maintain active DR program

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

At the time of offeringhellip Receive local shares in issuerrsquos

home country and confirm receiptOngoinghellip 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 authoritiesOngoinghellip Audit and prepare accounts

Accountants

ROLES amp RESPONSIBILITIESROLES amp RESPONSIBILITIES

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

CONCEPT OF DR RATIOCONCEPT OF DR RATIO

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

NYSE listing requirements

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

SIZE amp EARNINGS

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Domestic listing standards ndash NYSE

Size and earningsThe issuer must meet one of the following

criteriabull 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

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Size amp Earnings Continue 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)

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Listing fees for the NYSE

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

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

NASDAQ

NASDAQ National Market bull Size amp Earnings bull 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

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Size amp Earnings Continue

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

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Listing Fees

bull Original listing fees for ADR issuers range from $100000 to $150000 based on the number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $21225 to $30000 depending on the number of ADRs issued and outstanding

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

NASDAQ Capital Markets

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

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Listing Fees

bull Original listing fees for ADR issuers range from $25000 to $50000 depending on the total number of ADRs issued and outstanding

bull Annual continuing fees for ADR issuers range from $17500 to $21000 depending on the total number of ADRs issued and outstanding

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

GDR LISTING REQUIREMENTSGDR LISTING REQUIREMENTS

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

CONTENTS OF PROSPECTUSCONTENTS OF PROSPECTUS

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

Indian Companies using ADRGDR

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Why do Indian Corsquos opt for GDR

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

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

IDRIndian 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

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Offer of Indian Depository ReceiptsNot withstanding 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 Receipts by 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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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 shares

Issuers 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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Rights of IDR holders 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

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Listing amp trading 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

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

How does ADRGDR work bull Let us take Patni example ndash trades on the Indian stock at

around Rs460-bull This is equivalent to US$ 10 ndash assume for simplicity bull Now a US bank purchases 10000 shares of Patni and issues

them in US in the ratio of 101bull This means 1 ADR purchased is worth 10 Patni shares bull Quick calculation means 1 ADR = US $100bull Once ADR are priced and sold its subsequent price is

determined by supply and demand factors like any ordinary shares

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

In Simple terms - ADR GDR ISSUE

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Standard Chartered PLC IDR issuebullThe issue opened for subscription by investors on May 25 2010 and closed on May 28 2010bull subscribed 220 timesbullThe 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 processbullThe 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 pricebullUBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issuebullJM 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 issuebullStandard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issuebullJM Financial Services Private Limited Kotak Securities Limited SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issuebullKarvy Computershare Private Limited is the registar to the companybullThe 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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

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

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Major Countrywide ADR-GDR Issues

CLICK HERE TO SEE INDIAN DRrsquoS LIST

Amount of Capital Raised ( In Billion USD)Countrywide

CLICK HERE TO SEE LIST OF INDIAN COMPANIES CAPITAL RAISED

Performance of Indian ADRsGDRs Instanex Skindia Index

Like any index measures the performance of any stock market Instanex Skindia GDR index measures the performance of Indian ADRGDR The base of the Skindia GDR Index is April 15 1994 with the index set consisting of 21 actively traded GDRs and ADRs The Index a market value weighted index (total number of GDRs issued multiplied by GDR price) is one of the most popular GDR Indices

Company CMP(US$) PE Chg(US$) Chg()Dr Reddys (A) 3870 5885 011 03

GAIL (G) 3235 1773 109 35

Grasim Industries (G) 4422 1303 213 50

ICICI Bank (A) 3211 2802 093 30

Infosys Tech (A) 4915 2898 025 05

Instanex Skindia DR Index 207779 2381 4138 20

ITC (G) 548 3558 [001] [01]

L amp T (G) 1335 1246 067 53

Mahindra amp Mah (G) 1388 1671 047 35

Ranbaxy Labs (G) 585 -2371 029 52

Reliance (G) 2755 1873 110 42

Satyam Computers (A) 264 460 000 00

State Bank of India (G) 5400 1052 144 27

Sterlite Industries (A) 622 5455 000 00

Tata Communications (A) 450 929 000 00

Tata Motors (A) 2801 5273 071 26

Global Depositary Receipt (GDR) Stock Prices

This list gives you a Current Market Price (US $) PE Change (US $) and Change

THANK YOU

• Depositary Receipts
• Depositary
• Depositary Receipt
• Slide 4
• Slide 5
• Slide 6
• Slide 7
• AMERICAN DEPOSITORY RECEIPTS
• Levels of ADR
• Slide 10
• What is a GDR
• Eligibility for Issue of GDRs
• DIFFERNCE BETWEEN ADR amp GDR
• ADVANTAGES OF ADRGDR
• Benefits to the Company
• Company Benefits (contrsquod)
• Benefits to the Investor
• Investor Benefits (contrsquod)
• Investor Benefits (contrsquod) (2)
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs (2)
• Conditions for Issue of GDRs (3)
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue (2)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (2)
• Procedure for Issue of GDRs (3)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (4)
• Procedure for Issue of GDRs (5)
• Other Reporting Compliances and Issues
• Other Reporting Compliances and Issues
• Conversion and Transfer of GDRs
• Conversion and Transfer of GDRs
• Slide 38
• Slide 39
• Slide 40
• Slide 41
• NYSE listing requirements
• Domestic listing standards ndash NYSE
• Size amp Earnings Continue
• Listing fees for the NYSE
• NASDAQ
• Size amp Earnings Continue (2)
• Listing Fees
• NASDAQ Capital Markets
• Listing Fees (2)
• Slide 51
• Slide 52
• Indian Companies using ADRGDR
• Why do Indian Corsquos opt for GDR
• IDR
• Slide 56
• Slide 57
• Slide 58
• Rights of IDR holders
• Listing amp trading
• How does ADRGDR work
• In Simple terms - ADR GDR ISSUE
• Slide 63
• Slide 64
• Standard Chartered PLC IDR issue
• The details of the Issue Subscription are given below
• Major Countrywide ADR-GDR Issues
• Amount of Capital Raised ( In Billion USD) Countrywide
• Performance of Indian ADRsGDRs Instanex Skindia Index
• Slide 70
• THANK YOU

Company CMP(US$) PE Chg(US$) Chg()Dr Reddys (A) 3870 5885 011 03

GAIL (G) 3235 1773 109 35

Grasim Industries (G) 4422 1303 213 50

ICICI Bank (A) 3211 2802 093 30

Infosys Tech (A) 4915 2898 025 05

Instanex Skindia DR Index 207779 2381 4138 20

ITC (G) 548 3558 [001] [01]

L amp T (G) 1335 1246 067 53

Mahindra amp Mah (G) 1388 1671 047 35

Ranbaxy Labs (G) 585 -2371 029 52

Reliance (G) 2755 1873 110 42

Satyam Computers (A) 264 460 000 00

State Bank of India (G) 5400 1052 144 27

Sterlite Industries (A) 622 5455 000 00

Tata Communications (A) 450 929 000 00

Tata Motors (A) 2801 5273 071 26

Global Depositary Receipt (GDR) Stock Prices

This list gives you a Current Market Price (US $) PE Change (US $) and Change

THANK YOU

• Depositary Receipts
• Depositary
• Depositary Receipt
• Slide 4
• Slide 5
• Slide 6
• Slide 7
• AMERICAN DEPOSITORY RECEIPTS
• Levels of ADR
• Slide 10
• What is a GDR
• Eligibility for Issue of GDRs
• DIFFERNCE BETWEEN ADR amp GDR
• ADVANTAGES OF ADRGDR
• Benefits to the Company
• Company Benefits (contrsquod)
• Benefits to the Investor
• Investor Benefits (contrsquod)
• Investor Benefits (contrsquod) (2)
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs (2)
• Conditions for Issue of GDRs (3)
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue (2)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (2)
• Procedure for Issue of GDRs (3)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (4)
• Procedure for Issue of GDRs (5)
• Other Reporting Compliances and Issues
• Other Reporting Compliances and Issues
• Conversion and Transfer of GDRs
• Conversion and Transfer of GDRs
• Slide 38
• Slide 39
• Slide 40
• Slide 41
• NYSE listing requirements
• Domestic listing standards ndash NYSE
• Size amp Earnings Continue
• Listing fees for the NYSE
• NASDAQ
• Size amp Earnings Continue (2)
• Listing Fees
• NASDAQ Capital Markets
• Listing Fees (2)
• Slide 51
• Slide 52
• Indian Companies using ADRGDR
• Why do Indian Corsquos opt for GDR
• IDR
• Slide 56
• Slide 57
• Slide 58
• Rights of IDR holders
• Listing amp trading
• How does ADRGDR work
• In Simple terms - ADR GDR ISSUE
• Slide 63
• Slide 64
• Standard Chartered PLC IDR issue
• The details of the Issue Subscription are given below
• Major Countrywide ADR-GDR Issues
• Amount of Capital Raised ( In Billion USD) Countrywide
• Performance of Indian ADRsGDRs Instanex Skindia Index
• Slide 70
• THANK YOU

THANK YOU

• Depositary Receipts
• Depositary
• Depositary Receipt
• Slide 4
• Slide 5
• Slide 6
• Slide 7
• AMERICAN DEPOSITORY RECEIPTS
• Levels of ADR
• Slide 10
• What is a GDR
• Eligibility for Issue of GDRs
• DIFFERNCE BETWEEN ADR amp GDR
• ADVANTAGES OF ADRGDR
• Benefits to the Company
• Company Benefits (contrsquod)
• Benefits to the Investor
• Investor Benefits (contrsquod)
• Investor Benefits (contrsquod) (2)
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs
• Conditions for Issue of GDRs (2)
• Conditions for Issue of GDRs (3)
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue
• Agencies Involved in the GDR Issue (2)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (2)
• Procedure for Issue of GDRs (3)
• Procedure for Issue of GDRs
• Procedure for Issue of GDRs (4)
• Procedure for Issue of GDRs (5)
• Other Reporting Compliances and Issues
• Other Reporting Compliances and Issues
• Conversion and Transfer of GDRs
• Conversion and Transfer of GDRs
• Slide 38
• Slide 39
• Slide 40
• Slide 41
• NYSE listing requirements
• Domestic listing standards ndash NYSE
• Size amp Earnings Continue
• Listing fees for the NYSE
• NASDAQ
• Size amp Earnings Continue (2)
• Listing Fees
• NASDAQ Capital Markets
• Listing Fees (2)
• Slide 51
• Slide 52
• Indian Companies using ADRGDR
• Why do Indian Corsquos opt for GDR
• IDR
• Slide 56
• Slide 57
• Slide 58
• Rights of IDR holders
• Listing amp trading
• How does ADRGDR work
• In Simple terms - ADR GDR ISSUE
• Slide 63
• Slide 64
• Standard Chartered PLC IDR issue
• The details of the Issue Subscription are given below
• Major Countrywide ADR-GDR Issues
• Amount of Capital Raised ( In Billion USD) Countrywide
• Performance of Indian ADRsGDRs Instanex Skindia Index
• Slide 70
• THANK YOU