28 Nov
Depository Receipts for SFMG (ADR, GDR, IDR) | CA Final SFM
Raising Funds by an Indian Company through ADR
- Deposit of the securities of an Indian company with a custodian bank (agent of the depositary) in India.
- The custodian bank makes acknowledgement of deposits to the depository in the US.
- The depository in the US then issues the ADRs to the investors in the US.
- The US$ receipts in the hands of the depository are passed on to the Indian Company issuing shares.
American Depository Receipt (ADR)
- A certificate (receipt) that represents shares of a foreign company, owned and issued by a U.S. Bank (Depositary).
- Issued in accordance with the provisions stipulated by the Securities and Exchange Commission of USA.
- The foreign shares are held in custody overseas, but the certificates traded on one of the three major U.S. equity markets (the NYSE, AMEX or NASDAQ).
- ADRs are denominated in US$ and funds in the hands of the share issuing company are also in US$.
ADR Vs GDR
- ADR and GDR are commonly used by the Indian companies to raise funds from the foreign capital market.
- The principal difference between ADR and GDR is in the market in which they are issued and the exchange in which they are listed.
- WhileADRis traded on US stock exchanges, GDR is traded on European stock exchanges.
- WhileADR is issued by a US bank, GDR is issued by the international depository bank, representing foreign company’s stock trading globally.
- ThroughADR issue, funds can be raised in US stock market, Through GDRissue, funds can be raised in any country’s stock market except USA
Indian Depository Receipt (IDR)
- An IDR is a way for a foreign company to raise money in India. In an IDR, foreign companies would issue shares, to an Indian Depository, which would in turn issue depository receipts (IDR) to investors in India.
- The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian Depository to issue the IDRs.
- IDR are issued by a domestic depository in India and denominated in Indian Rupees.
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