ADR & GDR
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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 ?
• 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
• 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
TYPES of ADR : ADR listing :
• Unsponsored ADR NASDAQ
• Sponsored ADR AMEX
Level 1 NYSE
Level 2
Level 3
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)
GDR – Global Depositary Receipts
A bank certificate issued in more than one country for shares in a
foreign company
Offered for sale globally through the various bank branches
Shares trade as domestic shares
GDR – CUSTODIAN BANK –
DEPOSITORY BANK
• Custodian Bank located in same country
• Works with the Depository Bank and follows instructions
from the depository bank.
• Collects, remits dividends and forwards notices
received from the depository bank.
GDR MARKET
• GDRs can be created or cancelled depending on demand and suply
• 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
• London Stock Exchange
• Luxembourg Stock Exchange
• DIFX
• Singapore Exchange
• Hong Kong Exchange
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
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
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
• 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
