Raising Equity in the US market (ADR issue)

An International Finance Project by:Group 12

Aakanksha Varude 01Ashutosh Phadke 10Surbhi Parekh 47Vipul Bajaj 56

Scope of the PresentationWhat are ADRs?

Types of ADR

Levels of ADR

Who can issue an ADR?

Process to issue an ADR

ADRs: HDFC Bank

Advantages & Disadvantages of ADRs

Conclusion

Introduction To American Depository Receipts ADRs Video Investopedia 2.mp4

What are ADRs?

What are depository receipts? What are ADRs?

Traded in US dollars Quantification of an ADR

Traded on1. NYSE2. NASDAQ3. AMEX

ADRs:Acceptability through the years

ADRs were introduced in 1927

First ADR introduced by JP Morgan of British retailer

Selfridges

Currently more than 2000 company ADRs are available

NYSE: Reliance Industries listed in 1992

NASDAQ: Infosys Technologies listed in 1999

Types of ADR

Sponsored ADRs Unsponsored ADRsIssued with cooperation of the company whose stock will underlie the ADR

Issued by broker/dealer or depository bank without the involvement of company whose stock underlies the ADR

Comply with regulatory reporting No regulatory reporting

Listing on international Stock Exchanges allowed

Trade on OTC market

Levels of ADR

Level 1• Foreign companies not

listed on an exchange • Traded only on the OTC

market• Minimal reporting

requirements

Level 2• ADR is listed on an

exchange• Must file a registration

statement with the SEC• Higher visibility

Level 3• Floating a public offering of

ADRs on the exchange• ADRs are able to raise huge

capital

Who can issue an ADR?

Issued by a Depository abroad & listed on the overseas

stock exchanges

FEMA allows an Indian company to

issue its rupee denominated shares to a person resident

outside India

Issued in accordance with Ordinary Shares

Scheme (1993) & guidelines issued by

the Ministry of Finance

Process to issue an ADR

Custody of Indian Company EQUITY shares

Custody of US Company EQUITY shares

List of Indian Companies in ADR MarketS.No. Company Ticker Exchange/

MarketRatio ADR:ORD

Country Industry

1 Dr. Reddy's Laboratories RDY NYSE 1:1 India Pharma. & Biotech.

2 HDFC Bank HDB NYSE 1:3 India Banks

3 ICICI Bank IBN NYSE 1:2 India Banks

4 Infosys INFY NYSE 1:1 India Software&ComputerSvc

5 Rediff.com India REDF NASDAQ 2:1 India Software&ComputerSvc

6 Sesa Sterlite SSLT NYSE 1:4 India Construct.&Materials

7 SIFY SIFY NASDAQ 1:1 India Software&ComputerSvc

8 Tata Motors TTM NYSE 1:5 India Industrial Engineer.

9 Wipro WIT NYSE 1:1 India Software&ComputerSvc

10 WNS Holdings WNS NYSE 1:1 India Support Services

11 Grasim Industries GRSXY OTC 1:1 India Construct.&Materials

12 Mahanagar Telephone Nigam MTENY OTC 1:2 India Fixed Line Telecom.

ADRs: HDFC Bank

On February 6, 2015 HDFC Bank has raised Rs 10,000 crore through a domestic equity offer and an American Depository Receipt (ADR) issue in the US

The shares were offered at the price of Rs. 1,067 a share

The bank offered 22 million ADRs in the US, raising another Rs. 8,000 crores

The $1.27 billion ADR offering, which is the biggest US share sale by an Indian company since 2009, was priced at $56.76 per ADR.

1 USD = 66.1635 INR on 25th Sept, 2015

Advantages of ADRs

Issuer’s point of view

Investor’s point of view

Easy and cost effective way to invest in foreign companies Arbitrage opportunity More transparency and stability, freely transferrable Two way fungibility, reduces administrative costs and avoids foreign taxes on transactions

Easy access to the developed market Enhance company’s visibility, status and profile internationally To tap into the wealthy American Equity Markets DR holders do not have any voting right

Disadvantages of ADRs

Violating the regulations & requirements of SEC leads to de-listing from U.S Stock exchange

Foreign exchange risk i.e. currency of issuer is different from currency of DR

ADR issued companies have to pay high managing and annual fees

Political risk

Conclusion

There is a huge scope for good performing Indian

companies to raise funds through ADRs

Currently no Indian Companies are going for raising funds through ADR, because of

instability in currency, interest rates and other macro factors

Once an ADR is priced and sold on the market, its price is

determined by supply and demand, just like an ordinary

stock

Raising Equity through ADR will generate more volume

and higher safety for the company to withstand its

value globally

More and more companies are cross listing shares thus

broadening the international equity market