Global Depository Receipts
What is an American Depository Receipt?
Types of ADRs/GDRs
Why ADRs and GDRs?
To the Investors
To the Issuers
FCCB-Foreign Currency Convertible Bonds
Features of FCCB
Criteria for issuing FCCBs
Raising of funds through FCCB
What happens if FCCBs do not convert?
Pricing norms for FCCBs
FCCB issue by the Indian Companies need to conform to various regulatory requirements
Role of SEBI – Pre-issue and Post-issue requirements & Conditions to be fulfilled by the Issuer Company:
Benefits to the issuing companies
Benefits to the investors
Global Depository Receipts
Global Depository Receipts, since their inception, have acted as a very useful mechanism for movement of funds between different countries. Global Depositary Receipts (GDRs) are negotiable certificates issued by depositary banks which represent ownership of a given number of a company’s shares which can be listed and traded independently from the underlying shares. These instruments are typically used by companies from emerging markets. The concept of GDRs emerged from the concept of American Depository Receipts (ADR). The concept of ADR was introduced by JP Morgan in 1927 to facilitate trading for a UK retailer Selfridges’ shares in the US stock markets. Global Depository receipts (GDR) came into existence long after the American Depository receipts and function on the same lines. GDRs were first issued by Citibank in 1990. Samsung Corporation, a Korean trading company, wanted to raise equity capital in the United States through a private placement, but also had a strong European investor base that it wanted to include in the offering. The GDRs allowed Samsung to raise capital in the US and Europe through one security issued simultaneously into both markets. The mechanism of the operations of Global Depository Receipts is similar to that of the ADRs, the modulation being they can be traded anywhere in the world (or most of the stock exchanges in the world for that matter). GDRs are usually listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange. They are usually traded on the International Order Book (IOB) which is normally 1 GDR = 10 Shares. Since one type of security can be issued anywhere in the world, GDRs are inherently very flexible. What is an American Depository Receipt?
An American Depository Receipt (ADR) is a negotiable security representing ownership in some underlying shares of a non-US company, which can be traded on US stock exchanges using the ADR. ADRs are denominated in US dollars and function on the lines of the shares of a US company in terms of trading and dividend payment. Mechanism
The following example would clear the mechanism of the working of an ADR and the parties involved. 1. Suppose there is a broker, say Mr. X. He buys the shares of a company, say Reliance Industries Ltd. (RIL) from the Bombay Stock Exchange. 2. He then goes to his custodian bank, say ICICI, to hold the shares for the issuance of ADRs. 3. He then goes to another bank, called the Depository bank, say JP Morgan and asks them to issue ADRs on the basis of shares in the custody of ICICI. Note: In case of sponsored ADRs, the company (RIL in this case) can itself have a designated depository for issuance of ADRs, bypassing the custodian. 4. JP Morgan then confirms the shares held by ICICI and issues ADRs to Mr. X. 5. An ADR issued can represent a fraction of a share (say 1 ADR=1/2 a share of RIL), 1 single share or multiple shares (say 10 shares of RIL make 1 ADR). 6. These ADRs then can be traded on the US stock...
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