1. A Term Paper on
ADR & GDR
CHAITRA
MURTHY
(USN No: 1PI11MBA40)
Section : A

2. AMERICAN DEPOSITORY RECEIPTS
American Depositary Receipts is a negotiable security that represents securities
of a non-US company that trades in the US financial markets. Securities of a
foreign company that are represented by an ADR are called American
depositary shares (ADSs).
ADRs are one type of depositary receipt (DR), which is any negotiable
securities that represents securities of companies that is foreign to the market
on which the DR trades. DRs enable domestic investors to buy securities of
foreign companies without the accompanying risks or inconveniences of cross-
border and cross-currency transactions.
Each ADR is issued by a domestic custodian bank when the underlying shares
are deposited in a foreign depositary bank, usually by a broker who has
purchased the shares in the open market local to the foreign company. An ADR
can represent a fraction of a share, a single share, or multiple shares of a
foreign security. The holder of a DR has the right to obtain the underlying
foreign security that the DR represents, but investors usually find it more
convenient to own the DR. The price of a DR generally tracks the price of the
foreign security in its home market, adjusted for the ratio of DRs to foreign
company shares.
Therefore in simple words ADRs are:
 Is a negotiable certificate issued by a U.S. bank
 Represents a specified number of shares of a foreign company
 ADRs are denominated in U.S. dollars.

3. HOW DOES IT WORK?
Let us take Infosys 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 Infosys and issues them in
US in the ratio of 10:1
 This means each ADR purchased is worth 10 Infosys shares.
 Quick calculation means 1 ADR = US $400
 Once ADR are priced and sold, its subsequent price is determined by
supply and demand factors, like any ordinary shares.
ADR RATIOS
 Single
1 ADR = 1 SHARE
ADR Ratio = 1:1
 Multiple
1 ADR = 5 SHARE
ADR Ratio = 1:5
 Fraction

4. 1 ADR = ½ SHARE
ADR Ratio = 2:1
SPECIMEN COPY OF ADR
TYPES OF ADR:
 Unsponsored ADR
 Sponsored ADR

5.  Level 1
 Level 2
 Level 3
ADR LISTING:
 NASDAQ
 AMEX
 NYSE
ADVANTAGES:
 It is an easy and cost effective way to buy shares of a foreign company
 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)
DISADVANTAGES:
 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

6.  .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.
GLOBAL DEPOSITORY RECEIPTS
A global depository receipt or global depositary receipt (GDR) is a 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.
Global depository receipts facilitate trade of shares, and are commonly used to
invest in companies from developing or emerging markets.
Prices of global depositary receipt are often close to values of related shares,
but they are traded and settled independently of the underlying share.
Several international banks issue GDRs, such as JPMorgan
Chase, Citigroup, Deutsche Bank, The Bank of New York Mellon. GDRs are

7. often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and
in the London Stock Exchange, where they are traded on the International
Order Book (IOB).
Normally 1 GDR = 10 Shares,but not always. It is a negotiable instrument
which is denominated in some freely convertible currency. It is a negotiable
certificate denominated in US dollars which represents a non-US Company's
publicly traded local equity.
Global Depository Receipt is not a very different financial instrument, from
that of ADR. In fact 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.
In short GDRs are:
• A bank certificate issued in more than one country for shares in a foreign
company
• Offered for sale globally through the various bank branches
• Shares trade as domestic shares
• Custodian Bank located in same country
• Works with the Depository Bank and follows instructions from the
depository bank.

8. • Collects, remits dividends and forwards notices received from the
depository bank.
GDR MARKET
• GDRs can be created or cancelled depending on demand and supply.
• When shares are created, more corporate stock is placed in the custodian
bank in the depositary bank account. The depositary bank then issues the
new GDRs.
• Factors governing GDR prices are company track record, analysts
recommendations, relative valuations, market conditions and also
international status of the company.
GDR LISTING:
• London Stock Exchange
• Luxembourg Stock Exchange
• Singapore Exchange
• Hong Kong Exchange
ADVANTAGES AND DISADVANTAGES:
• GDRs allow investors to invest in foreign companies without worrying
about foreign trading practices, laws
• Easier trading, payments of dividends are in the GDR currency

9. • GDRs are liquid because they are based on demand and supply which is
regulated by creating or cancelling shares
• GDR issuance provides the company with visibility, more larger and
diverse shareholder base and the ability to raise more capital in
international markets
• However, they have foreign exchange risk i.e. currency of issuer is
different from currency of GDR
IN SIMPLE TERMS ADR & GDR
COMAPNY SHARE
DEPOSITARY BANK
INVESTOR
INDIA- ADR & GDR
 ADRs and GDRs are an excellent means of investment for NRIs and
foreign nationals wanting to invest in India

10.  By buying these, they can invest directly in Indian companies without
going through the hassle of understanding the rules and working of the
Indian financial market – since ADRs and GDRs are traded like any
other stock
 NRIs and foreigners can buy these using their regular equity trading
accounts
INDIAN COMPANIES USING ADR & GDR
COMPANY ADR GDR
BAJAJ AUTO No Yes
Dr. Reddys Yes Yes
HDFC Yes Yes
Hindalco No Yes
ICICI Yes Yes
Infosys Yes Yes
L&T No Yes
MTNL Yes Yes
Ranbaxy No Yes
ITC No Yes
TATA Motors Yes No
WIPRO Yes Yes
SBI No Yes