AMERICAN DEPOSITARY RECEIPTS 03

SCHOOL OF COMMERCE:

SCHOOL OF COMMERCE PPT ON:---- AMERICAN DEPOSITORY RECEIPT Submitted to – Submitted by- Prof. Anand Modi Vinod kumar MBA (FT) 7 th sem 5 year

AMERICAN DEPOSITARY RECEIPTS:

AMERICAN DEPOSITARY RECEIPTS

Introduction:

Introduction Depository receipts are instruments issued by international depositories(ODB), and they represent an interest in the underlying shares held by them in the issuer company(Indian company). The shares are usually held by a domestic custodian on behalf of the depositories and the depositories in turn issue the depository receipts, which entitle the holder of the receipts to get the underlying shares on demand .

What are ADRs ??????:

What are ADRs ?????? Introduced by JP Morgan in 1927 Prices in US Dollar Dividends in US Dollar Traded like shares of US-based company Involved banks: depository bank and investment bank Represents fraction of a shares, single share or multiple shares of foreign stock

Composite ADR Index……….:

Composite ADR Index………. 450 companies 39 countries Listed on NYSE AMEX NASDAQ New ADR are added quarterly

Types of ADR…:

Types of ADR… Unsponsored ADR Program Sponsored ADR Program Level I Level II Level III Two restricted programs

Level I:

Level I Traded in the „over the counter“ (OTC) market & some exchange outside US No full Securities and Exchange Commission (SEC) disclosure No Generally Accepted Accounting Principles (GAAP) Security listed on one or more stock exchange in a foreign jurisdiction Only annual report on its homepage in English

Level II (listed):

Level II (listed) Listed on U.S. exchange or quoted on NASDAQ Get higher visibility trading volume To set up  File a registration statement with the SEC More under SEC regulation File a form 20-F annually Partial compliance with GAAP

Level III (offering) :

Level III (offering) Public offer on a US exchange market Able to raise capital Substantial visibility in the US financial markets „Put under microscope“ More requirements from SEC File form 20-F annually Complete compliance with GAAP Addition: material information given to shareholder in home market, must be filed with the SEC through Form 8K

Create an ADR... :

Create an ADR...

How an ADR works?:

How an ADR works?

How does ADR work ?:

How does ADR work ? Let us take TCS example – trades on the Indian stock at around Rs.2000/- This is equivalent to US$ 40 – assume for simplicity Now a US bank purchases 10000 shares of TCS and issues them in US in the ratio of 10:1 This means each ADR purchased is worth 10 TCS shares. Quick calculation means 1 ADR = US $400 Once ADR are priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary shares.

Advantages of ADR:

Advantages of ADR It is an easy and cost effective way to buy shares of a foreign company Reduces administrative costs and avoids foreign taxes on every transaction Helps companies which are listed to tap the American equity markets Any foreigner can purchase these securities The purchaser has a theoretical right to exchange shares ( non- voting right shares for voting rights)

Disadvantages... :

Disadvantages... Only small selection of ADRs available for trading Long time to receive information Depository bank charge fees & expenses for converting currency Country specific risk Currency exchange risk Political and economical risks

Indian Companies using ADR:

COMPANY ADR Bajaj Auto No Dr. Reddys Yes HDFC Bank Yes Hindalco No ICICI Bank Yes Infosys Technologies Yes ITC No L & T No MTNL Yes Patni Computers Yes Ranbaxy Laboratories No Tata Motors Yes State Bank of India No VSNL Yes WIPRO Yes Indian Companies using ADR

Specimen Of ADR …:

Specimen Of ADR …

Slide 19:

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