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Raising equity in the us market adr issue

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Vipul Bajaj

This document discusses American Depository Receipts (ADRs), which allow foreign companies to have their stock traded on American exchanges. It covers what ADRs are, the different types (sponsored and unsponsored), levels of ADRs, the process of issuing an ADR, examples of Indian companies with ADRs like HDFC Bank, and the advantages and disadvantages for companies and investors. The conclusion is that ADRs provide opportunities for companies to raise funds internationally but also come with currency and political risks.

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Raising Equity in the US market (ADR issue) An International Finance Project by: Group 12 Aakanksha Varude 01 Ashutosh Phadke 10 Surbhi Parekh 47 Vipul Bajaj 56
Scope of the Presentation What 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
What are ADRs?
What are depository receipts? What are ADRs? Traded in US dollars Quantification of an ADR Traded on 1. NYSE 2. NASDAQ 3. 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 ADRs Issued 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 Market S.No. Company Ticker Exchange/M arket Ratio 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
Issuers point of view Investors 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 companys 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 Indian mutual fund can convert its ADR holdings to domestic shares and sell it in the domestic market, increasing arbitrage opportunity
Raising equity in the us market adr issue

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Raising equity in the us market adr issue

  • 1. Raising Equity in the US market (ADR issue) An International Finance Project by: Group 12 Aakanksha Varude 01 Ashutosh Phadke 10 Surbhi Parekh 47 Vipul Bajaj 56
  • 2. Scope of the Presentation What 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
  • 4. What are depository receipts? What are ADRs? Traded in US dollars Quantification of an ADR Traded on 1. NYSE 2. NASDAQ 3. AMEX
  • 6. 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
  • 8. Sponsored ADRs Unsponsored ADRs Issued 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
  • 10. 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
  • 11. Who can issue an ADR?
  • 12. 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
  • 14. Custody of Indian Company EQUITY shares Custody of US Company EQUITY shares
  • 15. List of Indian Companies in ADR Market S.No. Company Ticker Exchange/M arket Ratio 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.
  • 17. 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.
  • 18. 1 USD = 66.1635 INR on 25th Sept, 2015
  • 20. Issuers point of view Investors 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 companys visibility, status and profile internationally To tap into the wealthy American Equity Markets DR holders do not have any voting right
  • 22. 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
  • 24. 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 Indian mutual fund can convert its ADR holdings to domestic shares and sell it in the domestic market, increasing arbitrage opportunity

Editor's Notes

  • #5: DRs: It is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities ADRs: It is a negotiable security representing securities of a non-US company trading in the US financial markets It is denominated in US dollars and may be traded like regular shares of stock Each ADR represents a specific number of shares (one or more) in a foreign corporation ADRs are traded on NYSE, NASDAQ and AMEX in the United States
  • #7: Because of complexity involved in buying and trading of shares if foreign countries and its differing currencies; ADRS were introduced in the financial market in the year 1927 US banks (acting as depositories) simply purchase a bulk lot of shares from the foreign company There are more than 2,000 ADRs available representing shares of companies located in more than 70 countries Reliance Industries was the first Indian company to be listed on NYSE in 1992 and Infosys Technologies was the first Indian company to be listed on NASDAQ in 1999
  • #20: ADR is 1:3, so it gives Arbitrage option Value of Share in US market is $60.56 And in BSE Market it is Rs. 1050.30, If the investor trades in the US market and converts it using the cross-border transaction where by giving the chance to the local investor to earn the value. Intra-Market vs. Cross-Border Transactions Suppose an investor who is holding Depository Receipts wishes to sell them. The investor has to first notify his broker. The broker can either sell the Depository Receipts in the US market through an intra-market transaction where the Depository Receipts are sold to subsequent US investors by transferring them from the existing holder (who is now the seller) to the new holder (who is the buyer). Intra-market trading accounts for approximately 95% of all Depository Receipt trading. The investor can also sell the shares back into the home market through a cross-border transaction. In this case, the US broker surrenders the Depository Receipts to the depository bank, so as to deliver the shares to a buyer in the home market. The depository bank cancels the Depository Receipt and instructs the custodian to release the underlying shares and delivers them to the local broker. The Indian broker pays for them in equivalent Rupees that are converted into dollars by the US broker.
  • #24: Political risk In order the company to issue ADR for generating equity must be aware of its government stability Forex risk ADR shares track the shares in the home country, devaluation of home currency can trigger down the ADR creating a big loss to the company