american depositary receipts 07
TRANSCRIPT
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SCHOOL OF COMMERCE
PPT ON:----
AMERICAN DEPOSITORY RECEIPT
Submitted to Submitted by-
Prof. Anand Modi Vinod kumar
MBA (FT) 7th sem
5 year
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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.
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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
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Composite ADR Index«««.
450 companies
39 countries
Listed on
NYSE
AMEX
NASDAQ
New ADR are added quarterly
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Unsponsored ADR Program
Sponsored ADR Program
Level I
Level II
Level III
Two restricted programs
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Level I
Traded in the Äover the counter³ (OTC) market & some exchange outsideUS
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
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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
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Level III (offering)
Public offer on a US exchange marketAble to raise capital
Substantial visibility in the US financial marketsÄPut under microscope³
± 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
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Create an ADR...Investor decide to invest in an non-U.S. company
Contacts broker to make a purchase
Broker purchase actual ordinary shares to depositary bankµs custodian in the foreign country
Broker convert U.S. Dollar received from the investor into the foreign currency
On same day shares are delivered to custodian bank
Custodian notifies the depository bank
DR are issued and delivered to broker
Broker delivers DR to investor
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How an ADR works?
Dividends are paid
Custodian bank received it and
withholds any foreign taxes
Custodian bank changes
currency into U.S. Dollar
Custodian bank sends it todepositary bank
Depositary bank sends this to
investor
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How doesADR 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 issuesthem 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 isdetermined by supply and demand factors, like any ordinary
shares.
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Advantages of ADR
It is an easy and cost effective way to buy shares of a foreigncompany
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)
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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
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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 YesRanbaxy Laboratories No
Tata Motors Yes
State Bank of India No
VSNL Yes
WIPRO Yes
Indian Companies using ADR
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