Raising Equity Capital Through

ADRs & GDRs

Prepared ByJaikishanUpasana

Rahul DurgiaAmit Singh

Yogesh

Agenda• ADRs/GDRs• Who Can Issue ADR/GDRs• Types Of ADRs• What Is the Process• How Does It Works• Advantages• Disadvantages• Indian Companies In ADR/GDR Market.

What is Depository Receipts

• Is a type of negotiable instrument (transferable) financial security.

• It is issued by the Depository Participant of respective Country.

• It allows investors to hold shares in equity of other countries.

ADRs & GDRs??Domestic Stock Exchange

Domestic Stock Exchange

Listing In U.S Stock Exchanges

Listing In U.S Stock Exchanges

U.S Certificate ADRs

U.S Certificate ADRsListin

g Globally

Listing Globally

GDRs

GDRs

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

2. GDR is compulsory for foreign company to access in any other country’s share market. But ADR is compulsory for Non–U.S companies to trade in stock market of U.S.A

• These instruments are issued by a Depository abroad and listed in the overseas stock exchanges like NASDAQ.

• 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.

• ADRs/GDRs are issued in accordance with Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government .

Who Can Issue ADRs & GDRs??

Types Of ADRsUnsponsored ADRs

• Trades on Over-The-Counter Market.

• Company has no formal agreement with a Depositary Bank.

• Issued by more than one Depositary Bank.

Types Of ADRsSponsored Level I ADRs

• One designated depository who acts as its transfer agent.

• Issuing Company has to comply with U.S SEC minimal requirements.

• No need to issue quarterly or annual reports in compliance with U.S GAAP.

• Issuing Company must have its security listed on one or more domestic stock exchange.

• Company can upgrade to Level II & Level III ADR program for better exposure.

Types Of ADRs

Sponsored Level II ADRs• Issuing Company must file a registration

statement with the U.S. SEC and is now under SEC Regulations.

• Company is required to issue quarterly or annual reports and has to follow U.S GAAP standards or IFRS.

• Shares can be listed on U.S stock Exchange (NYSE, NASDAQ & AMEX).

• Company must meet the exchange listing requirements.

Types Of ADRs

Sponsored Level III ADRs• Issuing Company is required to follow

stricter rules which are followed by U.S companies.

• Company can do a public offer in U.S after filing Offering Prospectus.

• Price Sensitive information which is disclosed in home market must be filed with U.S SEC too.

What Is the Process??• Get an approval from the Ministry of Finance,

Government of India to issue such ADRs/GDRs.

• The ADR/GDR can be issued on the basis of the ratio worked out in consultation with the Lead Manager of the issue.

• The Indian company will issue shares in the name of the Overseas Depository (BNY Mellon) & keep it in the custody of the domestic Custodian in India.

• On the basis of the ratio worked out, the Depository (BNY Mellon) will issue ADRs/GDRs abroad.

How Does ADR/GDR Works??

For Example:

INFOSYS LTD

1 ADR = 1 Equity

Share

CMP in India(NSE) =

Rs. 3,028.25

Currency Exchange

rate:

1$ = Rs.63.50

CMP in USA

(NASDAQ) =

3028.25÷63.50

1 ADR =

$48

For Example: TATA

MOTORS LTD

1 ADR = 5 Equity

Share

CMP in India(NSE) =

Rs. 335

Currency Exchange

rate:

1$ = Rs.63.50

CMP in USA

(NASDAQ) =

(335*5)÷63.50

1 ADR =

$26.30

Advantages

• Global Presence.

• Money can be raised from all over

the world.

• Freely transferable by non-resident.

• They can be redeemed by Overseas

Depositary Bank.

• Arbitrage Opportunity for Investors.

• Diversification into foreign securities.

Disadvantages• Violating the Regulations &

requirements of SEC leads to de-listing from U.S Stock exchange.

• Issue cannot exceed more than 51% of the subscribed capital.

Indian Companies in the ADR/GDR Market

Company CMP(US$)

Dr. Reddy's (A) 35.74GAIL (G) 29.30Grasim Industries (G)

39.90ICICI Bank (A) 30.71Infosys Tech (A) 47.97ITC (G) 5.23L & T (G) 13.18Mahindra & Mah. (G)

13Ranbaxy Labs (G)

7.12Reliance (G) 27.44Satyam Computers (A)

2.64State Bank of India (G)

51.76Sterlite Industries (A)

6.22Tata Communications (A)

4.50Tata Motors (A) 26.11

Conclusion/Recommendations

• Expansion in Overseas can be financed by issuing ADRs/DGRs in that country.

• There is a huge scope for good performing Indian companies to raise funds through ADRs/GDRs.

• In last 1 year, fund raising through ADR/GDR has declined to $50 million from $300 million.

• Currently no Indian Companies are going for raising funds through ADR/GDR, because of instability in currency, interest rates and other macro factors.