Fm ADR N GDR Final

8/7/2019 Fm ADR N GDR Final

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TOPIC:

Identify an Indian company that hasissued ADRs or GDRs.Explain the process followed by thecompany in issuing ADRs/GDRs.How have these ADRs/GDRs behaved?

Group Members:

Pinkesh Shah 101Sarita Shah 102Ishan Shet 103Preksha Shetty 104Sushil Shetty 105

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What is ADR

ADR is the full form of American Depository Receipts. This is the recent method

adopted bymany large and well respected companies from India to raise fundsfrom American Markets.

ADVANTAGES OF ADRs:

There are many advantages of ADRs. For individuals, ADRs are an easy and costeffective way to buy shares of a foreign company. The individuals are able tosave considerable money and energy by trading in ADRs, as it reducesadministrative costs and avoids foreign taxes on each transaction. Foreign entities

prefer ADRs, because they get more U.S. exposure and it allows them to tap theAmerican equity markets. .

The shares represented by ADRs are without voting rights. However, anyforeigner can purchase these securities whereas shares in India can be purchasedon Indian Stock Exchanges only by NRIs or PIOs or FIIs. The purchaser has atheoretical right to exchange the receipt without voting rights for the shares withvoting rights (RBI permission required) but in practice, no one appears to beinterested in exercising this right.

What is GDR and how it operates

The full form of GDR is Global Depository Receipt. It is not a differentfinancial instrument, as it may sound, from that of ADR.

In fact if the Indian Company which has issued GDRs in the Americanmarket wishes to further extend it to other developed and advanced countriessuch as Europe, then they can sell these ADRs to the public of Europe and

the same would be named as GDR.

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How ADR Operates

Indian companies have direct access to raise funds from Indian public by

way of issuingShares, Debentures etc.

However Indian companies cannot do so, in such a direct manner, when itcomes to raising funds from American people. That would entail the Indiancompanies to adopt US Accounting Norms which is also called as GAAP,maintain accounting practices as per American Financial Year (Which startsin January and ends in December of any particular year), as also followvariety of stringent standards as per American norms. Effectively, it wouldmean that the Indian company would have to follow two different set ofrules simultaneously, one to comply with the laws of Indian Companies Act,and the other to comply with the American Laws.

The method to circumvent the American norms, but still raise funds fromAmerican people is available by way of ADR or American DepositoryReceipts. In this system, the Indian company deposits certain amount of itsIndian shares with designated American Banks.

The banks, in turn, issues receipts that are equivalent in values (And alsobased on the intrinsic value the Indian Companys shares would fetch in theAmerican market) to the Indian Company. These receipts essentially wouldbe in number of receipts.

Then these Indian Companies can trade these ADRs or American

Depository Receipts with the American public. These ADRs can bepurchased and traded freely without any encumbrances in the AmericanStocks and Shares Market. This way the Indian company is able to enter intothe American Stocks and Shares market, and raise funds from the Americanpublic.

The role of the American bank which has issued these receipts is verycrucial, since it is they who stand guarantee to the issued receipts. Hencethey do exhaustive study of the Indian company from all perspectives, andonly then issue the ADR to the Indian company.

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Which Indian companies have ADRs and / or GDRs?

Some of the best Indian companies have issued ADRs and / or GDRs. Below is a

partial list.Company ADR GDR

Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes Yes

Hindalco No Yes

ICICI Bank Yes Yes

Infosys Technologies Yes Yes

ITC No YesL&T No Yes

MTNL Yes Yes

Patni Computers Yes No

Ranbaxy Laboratories No Yes

Tata Motors Yes No

State Bank of India No Yes

VSNL Yes Yes

WIPRO Yes Yes

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Guidelines for ADR/GDR issues by the Indian Companies -

Disinvestment of shares by the Indian companies in the

Overseas market through issue of ADRs/GDRs

(i) Divestment by shareholders of their holdings of Indian companies, in theoverseas markets would be allowed through the mechanism of SponsoredADR/GDR issue in respect of:-

(a) Divestment by shareholders of their holdings of Indian companies listed inIndia;(b) Divestment by shareholders of their holdings of Indian companies not listedin India but which are listed overseas.

(ii) The process of divestment would be initiated by such Indian companies whoseshares are being offered for divestment in the overseas market by sponsoringADR/GDR issues against the block of existing shares offered by the shareholdersunder the provisions of these guidelines.

(iii) Such a facility would be available pari-passu to all categories of shareholders,of the company whose shares are being sold in the ADR/GDR markets overseas.This would ensure that no class of shareholders gets a special dispensation.

(iv) The sponsoring company, whose shareholders propose to divest existing sharesin the overseas market through issue of ADRs/GDRs will give an option to all itsshareholders indicating the number of shares to be divested and the mechanismhow the price will be determined under the ADR/GDR norms. If the sharesoffered for divestment are more than the pre-specified number to be divested,shares would be accepted for divestment in proportion to existing holdings.

(v) The proposal for divestment of the existing shares in the ADR/GDR marketwould have to be approved by a special resolution of the company whose sharesare being divested.

(vi) The proceeds of the ADR/GDR issue raised abroad shall be repatriated intoIndia within a period of one month of the closure of the issue.

(vii) Such ADR/GDR issues against existing shares arising out of the divestmentwould also come within the purview of the existing SEBI Takeover Code if theADRs/GDRs are cancelled and the underlying shares are to be registered with the

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company as shareholders.

(viii) Divestment of existing shares of Indian companies in the overseas marketsfor issue of ADRs/GDRs would be reckoned as FDI. Such proposals would requireFIPB approval as also other approvals, if any, under the FDI policy.

(ix) Such divestment inducting foreign equity would also need to conform to theFDI sectoral policy and the prescribed sectoral cap as applicable. Accordingly thefacility would not be available where the company whose shares are to be divestedis engaged in an activity where FDI is not permitted.

(x) Each case would require the approval of FIPB for foreign equity inductionthrough offer of existing shares under the ADR/GDR route.

(xi) Other mandatory approvals such as those under the Companies Act, etc. asapplicable would have to be obtained by the company prior to the ADR/GDRissue.

(xii) The issue related expenses (covering both fixed expenses like underwritingcommissions, lead managers charges, legal expenses and reimbursable expenses)for public issue shall be subject to a ceiling of 4% in the case of GDRs and 7% inthe case of ADRs and 2% in case of private placements of ADRs/GDRs. Issueexpenses beyond the ceiling would need the approval of RBI. The issue expensesshall be passed onto the shareholders participating in the sponsored issue on aprorate basis.

(xiii) The shares earmarked for the sponsored ADR/GDR issue may be kept in anescrow account created for this purpose and in any case, the retention of shares insuch escrow account shall not exceed 3 months.

(xiv) If the issues of ADR/GDR are made in more than one tranche, each tranchewould have to be treated as a separate transaction.

(xv) After completing the transactions, the companies would need to furnish fullparticulars thereof including amount raised through ADRs/GDRs, number ofADRs/GDRs issued and the underlying shares offered, percentage of foreignequity level in the Indian company on account of issue of ADRs/GDRs, details ofissue parameters, details of repatriation, and other details to the Exchange ControlDepartment of the Reserve Bank of India, Central Office, Mumbai within 30 daysof completion of such transactions.

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(xvi) The tax provision under Section 115 AC of the Income Tax Act 1961, whichis applicable to non-resident investors for ADR/GDR offering against issue offresh underlying shares would extend to non-resident investors investing in foreignexchange in ADRs/GDRs issued against disinvested existing shares, in terms of therelevant provisions of the Income Tax Act, 1961

(xvii) Resident shareholders divesting their holdings will be subject to Capital Gaintax provisions applicable under the Income Tax Act 1961 i.e. Section 115 ACapplicable for non-residents would not extend to them.

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COMPANY: INFOSYS

In which stock exchanges are Infosys shares/ADRs listed

and what are the codes?

Infosys' equity shares are listed on BSE and NSE in India and its ADS is listed onthe NASDAQ in the US. The respective codes are as below

IN INDIA OUTSIDE INDIA

NSE BSE NASDAQ

EXCHANGE CODE INFOSYSTCH 5002009 INFY

REUTERS CODE INFY.NS INFY.BO INFY.OTELERATE/

MONEYLINE CODE

IN:INFN IN:INF US:INFY

BLOOMBERG CODE NINFO IN INFO IN -

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AMERICAN DEPOSITORY RECIEPT/ AMERICAN

DEPOSITORY SHARE

Infosys Technologies Limited (INFY : 67.13, -0.19) is scheduled to reportQ3-2011 results on Monday, January 10, 2011. In the last four quartersending September 2010, the company's reported EPS exceeded analysts'consensus estimates by margins in the range of 1.79% and 13.46%.

Infosys is a global technology services company.

The company provides end-to-end business solutions. In addition, theCompany offers software products for the banking industry and businessprocess management services.

Earnings per American Depositary Share (ADS) was $0.65 for the quarter

ended September 2010, compared to $0.56 in the year ago quarter. Analysts' estimates for the third quarter of 2011 range from a low of $0.63 to

a high of $0.69, compared to a consensus estimate of $0.66 or year ago epsof $0.59.

Analysts' revenue estimates for the third quarter 2011 range from a low of$1.45 billion to a high of $1.61 billion, compared to reported revenue of$1.23 billion in the same quarter a year ago. For the third quarter, theconsensus EPS forecast has remained the same over the past week at $0.660and remained the same over the past month at $0.660. Analysts' estimates

are broadly in line with the company's guidance. The stock closed on Tuesday at $76.88, compared to 52 week range of

$49.55 and $77.92. In the last one year, the closing share price is gained$20.12 or 35.45%. For the fiscal year 2011, the company expects revenue tobe in the range of $5.95 billion and $6 billion.

Revenue expansion is expected to be driven by robust demand, particularlyin consulting and systems integration. However, the weakening U.S. dollarrelative to the rupee could affect the results. Based on the company'sprojections and my adjustments thereto I forecast 2011 EPS at $2.455, andsee 2011's at $2.855. Based on these estimates and relative valuation, I set atarget price of $80.

Each ADS or ADR represents 1 equity share.

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http://www.istockanalyst.com/symbol/INFYhttp://www.istockanalyst.com/symbol/INFYhttp://www.istockanalyst.com/symbol/INFY


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GLOBAL DEPOSITORY RECIEPT OF INFOSYS

Aftek Infosys announced the completion of its global depository receiptissue amounting to around $15 million; the GDRs were listed onLuxembourg Stock Exchange on 7TH FEB

Aftek had issued 13,33,100 GDRs each representing 3 equity shares of thecompany at a price of $11.25 per share. The issue had opened forsubscription on January 29.

The paid-up equity share capital of the company stands increased to Rs 10crore from Rs 6 crore, said a news release from the company.

PROCESS INVOLVED

The proceeds of the GDR issue will be utilised to fund investment incomplementary businesses, technologies, services, and products; or to enterinto strategic partnerships with parties who can provide access to thoseassets, fund future growth and for other general corporate working capitalpurposes, said the release.

USES

The GDR issue will help the company expand its markets in the Europeanregion. Besides consolidating its presence in its core domain areas ofembedded systems, mobile and wireless and the Web, the proceeds will alsohelp increase the company's shares of products and service offerings in keytechnology areas of knowledge management and 3G mobilecommunications, said the release

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Specimen Of ADR

ADRs give a weak performance; Tata Motors the worst hit

Indian ADRs seem not to be doing too great. Out of the 11 ADRs, 6 ADRs havegiven a negative return in this calendar year. Tata Motors has topped this list of

companies. Tata Motor's ADR has given a negative return of 18.86% between Jan3- May 23, 2007.

Tata Motors is followed by Infosys, DRL, Sify, Wipro and Satyam. These ADRshave fallen by 11.43%, 11.33%, 10.20%, 1.83%, 1.22% respectively.

In the domestic market as well these stocks have seen negative trend with TataMotors again being the biggest loser. On the BSE, Tata Motor's stock has fallen by23.87%, Infosys by 15.24%, 18.37%, Wipro by 12.49% and Satyam by 11.04%.

ADRs like Rediff.com, HDFC Bank, MTNL, VSNL, ICICI Bank and PatniComputers, on the other hand have shown a strong growth with the biggest gainerbeing Patni Computers. These ADRs have beefed by 1.50%, 9.53%, 13.70%,16.05%, 10.13% and 23.58% respectively. And in the domestic market the stockprice of these companies have grown by 3.98%, 5.38%, 7.65%, 2.20% and 22.37%respectively.

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Rupee appreciation is weighing strong on the IT firms with most of their ADRstrading weak and also the domestic market not treating them too well.

The sharp rupee appreciation impacted the margins of Infosys by 200 basis points.The management of the company is factoring in the rupee rate at 44.1 going aheadand expects to maintain margin in a narrow band.

CFO, V Balakrishna says, "If you look at the guidance, it has assumed stablemargins, even next quarter. The rupee has closed at 44.11 or so in December, weare assuming the same rate continuing for the next quarter. We believe that we willbe able to maintain the margins within the narrow band. The only factor, we haveto look for is a rupee-dollar rate."

Infosys has hiked its forex hedge to USD 1 billion from USD 470 million. Today

the rupee is trading at 40.56 down 0.0100 against the dollar.

Amongst the large-sized IT firms that have an ADR and trading weak, PatniComputer is an exception. Patni has shown a strong momentum both on the BSEand as an ADR.

There are news doing the round that a big chunk of Patni, India's 6th largestsoftware company, could be up for sale. This week a number of brokerages pointedout that not just Patni, but a number of midcap IT companies are looking likeacquisition targets, reports CNBC-TV18.

VSNL and MTNL, the other two gainers are riding on the strong momentum seenin the telecommunication space in India. According to Telecom RegulatoryAuthority of India, TRAI, at the end of quarter ending December 06 Wirelinesubscribers base is 40.3 Million.

As on March 31, 2006, the Wireless (Mobile and WLL) market has reached 149.62million subscribers as against 129.54 million subscribers in the previous quarter.

During this quarter 20.08 million subscribers were added, thus recording a growth

of 15.50%. The total wireless subscriber base has grown from 75.94 million inDecember 2005 to 149.62 million in December 2006

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Indian ADRs 2007 Review: Telecom, Banks Pace Gains

The chart below tells us more than the performance of the U.S. listed Indian stocks

in 2007. What it tells us is just how strong the Indian economy is and the rise of theIndian consumer.

The companies that targeted the local Indian consumers and the local Indianmarket emerged as the clear winners in 2007.

Telecom and Banks led the way. However, technology companies that depend onwestern markets such as United Sates under-performed during the year.

The two Indian Internet plays, Sify (SIFY) and Rediff(REDF), are looking more

like Lycos and Excite. These two stocks are showing no signs of life and I am notsure 2008 will be any better. Internet in India still hasnt emerged as peopleexpected it to. You cant go just by numbers and growth figures. Broadband is stilla dream for most consumers in India. I am planning to write about this topic soonso I will leave the bulk of my thoughts for that article.

Tata Motors (TTM) and Dr. Reddys (RDY) basically went nowhere but stilllook promising for 2008 and beyond. Tata is still waiting on the Jaguar and LandRover decision and the Rs. 1 Lakh ($2500) car is supposed to be launched in 2008.

The newly listed Sterlite (SLT) has almost doubled since its IPO.

Now the best way to get exposure to the Indian Market was via an Indian ETF orCEF. INP led the way with an 86% return in 2007.

Unfortunately, lots of great Indian companies are not listed in the United Statesand the best way to play the Indian market might as well be INP. However, withSensex near an all-time high, you want to time your entry well.

With the Indian economy booming and as the ever increasing middle classcontinues to see its purchasing power increase, the investing theme for 2008 ispretty clear. Invest in Indian companies that target the local market rather thenones that depend on western markets.

2008: The year ahead

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Find good entry points for:

HDFC Bank (HDB) ICICI Bank (IBN) iPath MSCI India Index ETN (INP) Sterlite (SLT)

** Dividends not included

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** Dividends not included

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Indian ADRs 31-July 2009

Company Price % Change

Dr. Reddys Lab 16.66 0.00 %

H D F C Bank(HDB) 96.15 3.64 %

ICICIBANK(IBN) 31.06 1.33 %

INFOSYSTECH.(INFY) 42.21 0.65 %

MTNL(MTE) 4.37 0.08 %

PATNICOMPUTERS(PTI) 14.90 2.53 %

REDIFF.COM(REDF) 3.09 0.08 %

SATYAMCOMP(SAY) 5.16 0.11 %

SATYAMINFOWAY(SIFY) 1.80 0.00 %

STERLITE IND. (SLT) 13.25 0.67 %

TATA COMM.(TCL) 21.38 0.62 %

TATAMOTORS(TTM) 10.48 0.32 %

WIPRO 14.39 0.25 %

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Company: Wipro Ltd

In which stock exchanges are Wipro shares/ADRs listed and

what are the codes?

Indices that Include WIT

Symbol Name Last Trade % Change

^NYA NYSE COMPOSITE INDEX (NEW METHO 8,383.67Feb 15 0.00 (0.00%)

^NYI NYSE International 100 5,583.94Feb 15 0.00 (0.00%)

^NYL NYSE World Leaders 5,857.78Feb 15 0.00 (0.00%)

^NYY NYSE TMT 6,137.90Feb 15 0.00 (0.00%)

Prices

Date Open High Low Close Avg Vol Adj Close*

Feb 1, 2011 13.23 13.47 12.50 12.96 795,800 12.96

Jan 26, 2011 0.044 Dividend

Jan 3, 2011 15.56 15.78 12.83 13.18 1,036,100 13.18

Dec 1, 2010 13.90 15.69 13.77 15.47 513,000 15.42

Nov 1, 2010 14.37 15.33 13.44 13.69 467,000 13.65Oct 1, 2010 14.83 16.81 14.18 14.28 724,800 14.23

Sep 1, 2010 12.99 14.89 12.83 14.46 436,400 14.41

Aug 2, 2010 13.79 14.21 12.48 12.83 402,500 12.79

Jul 1, 2010 12.00 13.66 11.75 13.60 343,000 13.56

Jun 23, 2010 5: 3 Stock Split

Jun 14, 2010 0.081 Dividend

Jun 1, 2010 20.53 23.00 11.92 12.00 545,300 11.96

May 3, 2010 22.46 22.79 18.84 21.15 805,700 12.57

Apr 1, 2010 23.56 24.74 22.34 22.46 659,400 13.34Mar 1, 2010 21.75 24.29 21.75 23.31 576,200 13.85

Feb 1, 2010 19.84 21.76 19.10 21.62 755,200 12.85

Jan 4, 2010 22.70 23.99 19.65 19.69 1,606,900 11.70

Dec 1, 2009 20.01 23.00 19.67 22.27 889,600 13.23

Nov 2, 2009 17.36 21.15 17.00 20.00 990,100 11.88

Oct 1, 2009 17.72 19.53 17.08 17.15 1,125,900 10.19

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http://finance.yahoo.com/q?s=%5ENYAhttp://finance.yahoo.com/q?s=%5ENYIhttp://finance.yahoo.com/q?s=%5ENYLhttp://finance.yahoo.com/q?s=%5ENYYhttp://finance.yahoo.com/q?s=%5ENYAhttp://finance.yahoo.com/q?s=%5ENYIhttp://finance.yahoo.com/q?s=%5ENYLhttp://finance.yahoo.com/q?s=%5ENYY


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Sep 1, 2009 15.75 17.99 15.23 17.95 816,800 10.67

Aug 3, 2009 14.60 16.40 14.00 15.75 742,300 9.36

Jul 1, 2009 11.84 14.75 10.62 14.52 710,800 8.63


Jun 1, 2009 12.00 13.00 10.63 11.80 702,100 7.01May 1, 2009 9.38 12.61 9.23 11.80 1,136,300 6.96

Apr 1, 2009 7.27 9.60 6.90 9.38 1,217,000 5.54

Mar 2, 2009 5.49 7.82 5.04 7.11 960,100 4.20

Feb 2, 2009 6.71 7.33 5.69 5.69 782,400 3.36

Jan 2, 2009 8.29 8.75 6.09 6.94 1,024,400 4.10

Dec 1, 2008 7.30 8.49 6.10 8.13 980,100 4.80

Nov 3, 2008 8.74 8.74 5.66 7.56 1,203,600 4.46

Oct 1, 2008 9.63 9.98 5.75 7.74 1,545,000 4.57

Sep 2, 2008 11.90 12.08 8.88 9.72 1,572,300 5.74Aug 1, 2008 11.45 11.97 10.80 11.58 806,200 6.83

Jul 1, 2008 11.83 12.18 10.05 11.26 1,261,300 6.65


Jun 2, 2008 14.00 14.53 11.73 12.18 781,200 7.19

May 1, 2008 12.89 14.38 12.54 14.16 693,200 8.29

Apr 1, 2008 11.63 13.20 10.89 13.00 1,007,300 7.61

Mar 3, 2008 11.49 11.84 9.85 11.53 953,300 6.75

Feb 15, 2008 11.64 12.60 11.38 11.54 821,300 6.75

* Close price adjusted for dividends and splits.

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Fm ADR N GDR Final

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