Lokesh Dodani – 32

Sunil Gyanchandani – 42
Tripti Kochar – 52
Mukul Ahuja – 05
Akshay Aggarwal – 03
Manish Mahajan – 59
Ritika Gupta – 41
 Depository Receipt
ADR - American Depositary Receipt

 An  ADR represents ownership in the shares of a non-

U.S. company and trades in U.S. financial markets.

Advanced Financial Management 2

 GDR - Global Depositary Receipt

 GDR is a certificate issued by a depository bank, which

purchases shares of foreign companies.

Advanced Financial Management 3

ISSUER INVESTOR
Attractive pricing Diversification
No foreign exchange Negotiable instrument
fluctuations free from investment
restrictions
Granting ESOPs Investment opportunities
&
Less obstacles
Less monitoring Trading information and
research
Enhances image of Prompt dividend
company globally. payment in dollars
 ADR GDR

 Centre – NYSE  Centre – LSE

 Disclosure – Requires
Comprehensive Disclosure.
 GAAP – Company
accounts must be
reconciled to US GAAP.
 Cost – Comparatively
higher.
 Retail – US retail market
can be accessed.
 Disclosure – Only Detailed
Information Required.
 GAAP – Satisfied with
Statement of difference
between the A/c Standards.
 Cost – Comparatively lower.
 Retail – Only QIBs allowed in
US.
 Liability – Comparatively

 Liability – Legal liability is less than ADR.

more.

Advanced Financial Management 5

Lead manager Listing agent
Co-manager Legal advisors
Overseas Printers
Depository Banks Auditors
Domestic Underwriters
Custodian Bank
 Company issues5Ordinary Shares

Kept with Domestic Custodian

Transferred to the Overseas

Depository Bank

ADR’s /GDR’s are issued by ODB

Receipts given to the foreign investors

 Appoint Listing Agent / Lead manger

Due Diligence Positioning

Required financial Valuation
statements Deal Structure

Prepare prospectus Presentation material

and Q & A practice

Apply for listing &

regulatory approval Analyst Meeting
through listing agent
Premarketing to
Institutions

Road shows & marketing to investors

List on Eurolist , Start trading

 Types of ADRs

Unsponsored Sponsored

Level I Level II Level III Private placement

 Created in response of investors, brokers -
dealers and depository.
 Exempted from reporting requirements of the
SEC.
 Not Listed on any exchange.
Advantages: Disadvantages:
 Inexpensive.  No control over
 Expands investors base. the activity.
 Minimal SEC compliance  Conversion
and reporting becomes costly.
requirements.
 Initiated by Issuer.
 Established jointly by an Issuer and Depository.
 Agreement between Issuer and Depository.
 Depository provides shareholders
communication and other information to ADR
holders.
 Through Depository ADR holders can exercise
voting rights.
 Level I Level II Level III
Least Expensive More Expensive Most
Expensive
Minimal SEC Full SEC SEC reporting
registration registration & is more
&reporting reporting detailed than
requirements. requirements. Level II.

Cannot be listed on Listed on National Listed on

National exchange exchange of US. National
of US. exchange of
US.
Capital Raising is Capital Raising is Capital can
not permitted. not permitted. be raised
through
 Capital can be raised by placing Depositary
Receipts with large institutional investors.
 Do not have to conform full SEC reporting
and registration requirements.
 Cheaper means of raising equity capital.
 Can only be sold to QIBs.
Fungibility = Interchangeability of any
security
One way Two way
 Improvement in Liquidity

 Elimination of Arbitrage.
 Dividend will be taxed @10 %
 All transactions of trading of the GDRs outside India, among
non-resident investors, will be free from any liability of income
tax in India.
 Capital gains arising on the redemption of shares will be liable
to income tax Section 115AC.
 Long-term capital gains tax @ 10 %

 Short-term capital gains tax@ 15 %

(Section 195 and 196 of IT Act).

Advanced Financial Management 17

Eligibility of the issuer Eligibility of the
subscriber
Approval of Board of Approval of
Directors shareholders
Listing requirements Approval of FIPB

Pricing Reporting
requirements of RBI
Issue expenses Companies Act
Private Sector Banking 74% Drugs & Pharmaceuticals 100%
Non-Banking Financial 100% Road and highways, Ports and 100%
Companies harbours
Insurance 26% Hotel & Tourism 100%
Telecommunications 74% Mining 74-100%
Services
Petroleum Refining- 100% Advertising 100%
Private Sector
Housing and Real Estate 100% Films 100%
Trading 51-100% Airports 74%
Coal & Lignite 50-100% Mass Rapid Transport Systems 100%

Power 100% Pollution Control & Mng. 100%

Air transport Services (no 100% -NRIs, Special Economic Zones 100%
foreign airlines) 49% others
Advanced Financial Management 20