LLIM ADR-and-GDR-CF-ppt

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ADR & GDR:

ADR & GDR Submitted by: Karan Wahi – 180 Bikramjeet Sandhu – 129 Gurdeep Saini – 125 Hardeep singh – 5 Geeta – 2973

What is ADR :

What is ADR ADR- American Depositary Receipts A negotiable certificate issued by a U.S. bank Represents a specified number of shares of a foreign company ADRs are denominated in U.S. dollars.

How does ADR/GDR work ?:

How does ADR/GDR work ? Let us take Infosys 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 Infosys and issues them in US in the ratio of 10:1 This means each ADR purchased is worth 10 Infosys 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.

ADR RATIO:

ADR RATIO Single 1 ADR = 1 SHARE ADR Ratio = 1:1 Multiple 1 ADR = 5 SHARES ADR Ratio = 1:5 Fraction 1 ADR = ½ SHARE ADR Ratio = 2:1

ADR:

ADR TYPES of ADR : ADR listing : Unsponsored ADR NASDAQ Sponsored ADR AMEX Level 1 NYSE Level 2 Level 3

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)

GLOBAL DEPOSITORY RECIEPTS:

GLOBAL DEPOSITORY RECIEPTS (GDR)- it is the certificate issued by international banks ,which can be subject of world wide circulation of capital markets. They are offered for sale globally through the various bank branches. There are more than 900 GDR’s listed on stock exchanges worldwide, with more than 2,100 issuers from 80 countries. No's of GDR’s has recently surpassed ADR’s because of lower expense and time saving in issuing. Mostly issued on London and Luxemburg stock exchanges.

GDR – CUSTODIAN BANK – DEPOSITORY BANK:

GDR – CUSTODIAN BANK – DEPOSITORY BANK Custodian bank is located in the home country of the issuer and holds the underlying corporate shares of the GDR for safekeeping. The custodian bank is generally selected by the depositary bank rather than the issuer, and collects and remits dividends and forwards notices received from the issuer to the depositary bank, which then sends them to the GDR holders. A separate custodian bank holds the company shares that underlie the GDR. The depositary bank buys the company shares and deposits the shares in the custodian bank, then issues the GDR’s representing an ownership interest in the shares. Works with the Depository Bank and follows instructions from the depository bank.

GDR MARKET :

GDR MARKET GDRs can be created or cancelled depending on demand and supply When shares are created, more corporate stock is placed in the custodian bank in the depositary bank account The depositary bank then issues the new GDRs Factors governing GDR prices are company track record, analysts recommendations, relative valuations, market conditions and also international status of the company

GDR Listing :

GDR Listing London Stock Exchange Luxembourg Stock Exchange Dubai International Financial Exchange (DIFX) Singapore Exchange Hong Kong Exchange

PowerPoint Presentation:

Companies choose a particular exchange because it feels the investor of the exchange’s country know the company better, because the country has a larger investor base for international issues, or because the company’s peers are represented on the exchange. Most GDR’s trade on the London or Luxembourg exchanges because they were the 1 st to list GDR’s and because it is cheaper and faster to issue GDR for those exchanges. GDRs can be created or cancelled depending on demand and supply. When shares are created, more corporate stock is placed in the custodian bank in the depositary bank account. The depositary bank then issues the new GDRs. Factors governing GDR prices are company track record, analysts recommendations, relative valuations, market conditions and also international status of the company.

GDR- Advantages and Dis-advantages:

GDR- Advantages and Dis-advantages GDRs allow investors to invest in foreign companies without worrying about foreign trading practices, laws Easier trading, payments of dividends are in the GDR currency GDRs are liquid because they are based on demand and supply which is regulated by creating or cancelling shares GDR issuance provides the company with visibility, more larger and diverse shareholder base and the ability to raise more capital in international markets However, they have foreign exchange risk i.e. currency of issuer is different from currency of GDR

In Simple terms - ADR / GDR ISSUE:

In Simple terms - ADR / GDR ISSUE COMPANY SHARE DEPOSITARY BANK INVESTOR

Difference between ADR and GDR:

Difference between ADR and GDR Both ADR and GDR are depository receipts, and represent a claim on the underlying shares. The only difference is the location where they are traded. Depositary receipts traded in USA – ADR Depositary receipts traded in a country other than USA - GDR

India- ADR and GDR:

India- ADR and GDR ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals wanting to invest in India By buying these, they can invest directly in Indian companies without going through the hassle of understanding the rules and working of the Indian financial market – since ADRs and GDRs are traded like any other stock NRIs and foreigners can buy these using their regular equity trading accounts

Indian Companies using ADR/GDR:

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

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