Depository receipts

Depository receipts

2. A DR is a type of negotiable (transferable)
financial security traded on a local stock
exchange but represents a security,
usually in the form of equity, issued by a
foreign, publicly-listed company.
The DR, which is a physical certificate,
allows investors to hold shares in
equity of other countries.

3. DRs are created when a foreign company
wishes to list its securities on another
country’s stock exchange.
Many times, the policies of Stock Exchanges
are much more stringent, deters these
companies from listing on foreign stock
exchanges directly.

4. But Companies get listed on these stock
exchanges indirectly – using DRs like ADRs/
GDRs/IDRs.
Before creating DRs, the shares of the foreign
company, which the DRs represent, are
delivered and deposited with the custodian bank
located in the country where it wants to list
indirectly.
The bank issues receipts against these shares,
each receipt having a fixed number of shares
as an underlying (Usually 2 or 4).

5. These DRs are then sold to the people of this
foreign country.
These DRs are listed on the stock exchanges.
They behave exactly like regular stocks – their
prices fluctuate depending on their demand and
supply, and depending on the fundamentals of the
underlying company.
The issuing bank acts as a depository for these
shares – that is, it stores the shares on behalf of
the receipt holders.

6. One of the most common types of DRs is the
American depository receipt (ADR), which has
been offering companies, investors and traders
global investment opportunities since the
1920s.

Since then, DRs have spread to other parts
of the globe in the form of global
depository receipts (GDRs).
The other most common type of DRs are
 European DRs and International DRs.

7. ADRs are typically traded on a US
national stock exchange, such as the
New York Stock Exchange (NYSE) or the
American Stock Exchange.
GDRs are commonly listed on
European stock exchanges such as the
London Stock Exchange.
Both ADRs and GDRs are usually
denominated in US dollars, but can
also be denominated in Euros.

8. Company ADRs GDRs
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 Yes
L&T No Yes

9. Company ADRs GDRs
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

10. IDRs are transferable securities to be listed on
Indian stock exchanges in the form of depository
receipts.
Created by a Domestic Depository in India
against the underlying equity shares of the
issuing company which is incorporated
outside India.

11. The Securities and Exchange Board of
India (SEBI), has introduced guidelines for
foreign companies to raise capital here
by issuing Indian depository receipts
(IDRs).
It has set a minimum size of the IDR float
at Rs 50 crore and the minimum
investment limit at Rs 2 lakh per investor.

12. GDRs and ADRs are amongst the most common
DRs.
When the depository bank creating the depository
receipt is in the US, the instruments are known as
ADRs.

Similarly, other depository receipts, based on the
location of the depository bank creating them, have
come into existence, such as the GDR, the
European Depository Receipts, International
Depository Receipts & Indian Depository Receipts.


13. What are the benefits of issuing
IDRs to companies?
IDRs lead to increased access to capital.
Are a means of increasing global
visibility and trade,
Allow increased liquidity and an
international shareholder base.

14. Any foreign company listed in its home country
and satisfying the eligibility criteria can issue
IDRs.
Typically, companies with significant business
in India, or an India focus, may find the IDR
route advantageous.

Similarly, the foreign entities of Indian
companies may find it easier to raise money
through IDRs for their business requirements
abroad.