Batch 84 Group Members - Aarti -Aklesh Pal -- Inderpreet Singh -- Randeep Kaur Saini -- Srinivas Basani

Flow of Presentation
Introduction
Types of borrowings ADRs

Process to issue ADRs

Advantages and Disadvantages of ADRs GDRs List of Indian companies issued ADRs/GDRs

Introduction
Finance is the life-blood of all business activities.
Every business enterprise needs two types of capital, viz., fixed or long-term capital and working or short-term capital.

Sources of raising funds:

Issue of Shares - who purchase these shares are called 'shareholders'. They are the owners of the company. Issue of debentures they are acknowledged as a debt of the company and debentureholders are not the owners of the company. Qualified Institutional Placement - securities that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. Loan financing: A business can also finance through loans from specialised financial institutions and development banks or from commercial banks.

Types of Overseas Borrowings

External commercial borrowing (ECBs) - an instrument used in

India to facilitate the access to foreign money by Indian corporations and PSUs. ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitized instruments. Foreign currency convertible bonds (FCCBs) - Corporates issue FCCBs to raise money in foreign currencies. They are equity linked debt securities that are to be converted into equity or depository receipts after a specified period. Global Depository Receipt (GDR) - certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares. American Depository Receipt (ADR) - a negotiable security that represents securities of a non-US company that trades in the US financial markets.

ADRs and GRDs

Looking to tap a new investor base . Increasing globalization and investor appetite for

diversification . Expand awareness or raise capital. Has driven explosive growth in the depositary receipt market.

The first ADR was created in 1927 by J.P. Morgan, to allow Americans to invest in shares of Selfridges, a British department store.

Companies from more than 80 countries have gained new investors outside their home markets

More than 2,100 issuers have issued depositary receipts

More than 900 GDR programs are listed on stock exchanges, typically in London or Luxembourg.

The Bank of New York, JPMorgan, Deutsche Bank and Citigroup are among the leading depositary banks, which create and issue ADRs.

American Depository Receipt (ADR)

ADRs American Depository Receipts

A security issued by a company outside the U.S. Physically remains in the country of issue, usually in the

custody of a bank, But is traded on U.S. stock exchanges. In other words, ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are denominated and pay dividends in US dollars and may be traded like regular shares of stock. Used by Indian companies to tap into the US capital market. Enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border

Parties involved in issuance of ADRs

1)

Issuing corporation - The issuer sells a bulk amount of its shares to a trusted U.S. party - a recognized bank.
An U.S. bank - The bank accepts the shares from the foreign corporation, stores all of them in its vault, and prints a bunch of certificates that represent the shares. Those certificates are then issued to investors via an exchange. U.S. exchange (i.e. NYSE or Nasdaq) - Lists the bank's certificates for trading, allowing investors to buy and sell ADR units just as they would normal shares. The Securities and Exchange Commission (SEC) - ADR issuers to file certain documents with the SEC before allowing the proposed ADR units to be issued and traded in the U.S. markets.

2)

3)

4)

Types of ADR
Unsponsored ADRs - shares traded on the over-the-counter (OTC) market

and are often issued by more than one depositary bank.

Sponsored level I ADRs ("OTC" facility) - Lowest level of sponsored adrs

that can be issued. A majority of American depositary receipt programs currently trading are issued through a Level 1 program. This is the most convenient way for a foreign company to have its equity traded in the United States. Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission (SEC).
Sponsored Level II ADRs ("Listing" facility) - Are more complicated for a

foreign company. and must file a registration statement with the U.S. SEC and is under SEC regulation. The shares can be listed on a U.S. stock exchange that include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX).

 Sponsored Level III ADRs ("offering" facility) - The highest level a foreign

company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. Companies.

Advantages of ADRs
ADRs can be bought and sold just like shares of IBM or Coca-Cola.
You don't need a foreign brokerage account or a new broker; you can use

the same broker that you normally deal with. Eg - Say you're interested in investing in France. One option is to open a brokerage account in Paris, wire some money over there, convert your dollars into Euros, and then go shopping for French stocks. To say the least, this would be a difficult and time-consuming process. Prices for ADRs are quoted in U.S. dollars, and dividends are paid in dollars. ADRs trade during U.S. market hours and are subject to similar clearing and settlement procedures as American stocks. You can customize your portfolio however you like, depending on which countries or sectors you are interested.

Advantages of ADR offer to investors

ADRs are denominated in dollars and also pay dividends

in dollars, which eliminates (often costly) currency conversions. Provide more information and greater transparency for the investor as they must comply with US securities laws and disclosures. Issuance of an ADR can potentially improve the liquidity of the stock in the home market.

Disadvantages of ADRs
Limited selection: Not all foreign companies are available as

ADRs. For example, Japan's Toyota Motor has an ADR, but Germany's BMW does not. Liquidity: Plenty of companies have ADR programs available, but some may be very thinly traded. Exchange rate risk: While ADRs are priced in dollars, for sake of convenience, your investment is still exposed to fluctuations in the value of foreign currencies. Because ADRs are like stocks, you need to buy enough of them to ensure adequate diversification. So if you don't have enough investment capital to spread around, say 25 to 30 ADRs (or more), you won't be able to create a truly diversified portfolio on your own

Disadvantages of ADRs to investors

One of the main disadvantages of trading ADRs is that certain ADRs are not

nearly as liquid as their ordinary shares, making it difficult to establish or sell a large position in a given ADR. In addition, while ADRs are dollardenominated, they still expose investors to currency risk. Japanese ADRs, for instance, are made less valuable by a decline in the yen. Finally, ADRs sometimes trade at a premium to the ordinary share, so that investors must pay extra for the convenience of the ADR.

Real example
ICICI Banks stock is listed in India and isnt available to most

foreign investors. However it has a depositary receipt issued in New York and traded on the New York stock exchange, which almost anyone can buy. The depositary receipt for ICICI is issued by Deutsche Bank. For each depositary receipt in circulation, Deutsche Bank holds the equivalent number of India-listed shares on behalf of the owners of the ADR. One ADR or GDR does not always equal one share of underlying stock. And with ICICI, the ADR actually represents two India-listed shares of ICICI and is priced accordingly.

GDRs?
A bank certificate issued in more than one country for shares in a

foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros. The voting rights of the shares are exercised by the Depository as per the understanding between the issuing company and the GDR holders. The objective of a GDR is to enable investors in developed markets, who would not necessarily feel happy buying emerging market securities directly in the securities home market, to gain economic exposure to the intended company and, indeed, the overall emerging economy using the procedures with which they are familiar.

Process to issue GDRs

1st Step - To find the Depository bank Depository bank has only right to issue the GDRs. So, it is necessary to find depository bank in USA and other European countries. 2nd Step - Issue the Shares to Depository bank Shares can not issued to foreign investors. But shares are issued to depository bank and depository bank will accept the shares of Indian companies as the custodian of foreign investors. 3rd Step - Deposit the fees For issuing GDRs, either investors or Company has to deposit the fees for issuing the certificate named global depository receipt. 4th Step - Issue of GDRs and Record Depository bank has right to issue one GDR certificate for 2 to 10 shares. The issue of GDRs to those investors who will pay the amount of shares of Indian companies.

Characteristics of GDRs

It is an unsecured security . A fixed rate of interest is paid on it . It may be converted into number of shares . Interest and redemption price is public in foreign agency It is listed and traded in the share market.

If the Indian company which has issued GDRs in the American

market wishes to further extend it to other developed and advanced countries such as Europe, then they can sell these ADRs to the public of Europe and the same would be named as GDR.

COMPANY

ADR PRICE (US$) 39 33.3 31.3 49.4 0.5 2.4 1.9 12.3 28.9 10.6

ISSUE PRICE (US$) 10 59.4 11 17 7.5 12 0.4 13.4 0 41.2

DR. REDDYS LAB(REDY) HDFC BANK(HDBK) ICICI BANK(ICBK) INFOSYS LTD(INFY) MTNL(MTNL) REDIFF.COM(REDF) SATYAMINFOWAY(SIFY) SESA STERLITE(SESA) TATA MOTORS(TELCO) WIPRO(WPRO)