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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$.
Features of ADRs (In context of Indian Company)
- ADRs are US$ denominated and are traded in the same way as are the securities of US companies.
- The ADR holder is entitled to the same rights and advantages as owners of the shares in India.
- ADR represents ownership in shares of Indian Company that is traded in US Stock Exchanges.
- ADRs pay dividends in US$ and can be traded like shares of US based companies.
- The value of ADR fluctuates based on the price movements of the underlying shares.
ADR v/s 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.
- While ADR is traded on US stock exchanges, GDR is traded on European stock exchanges.
- While ADR is issued by a US bank, GDR is issued by the international depository bank, representing foreign company's stock trading globally.
- Through ADR issue, funds can be raised in US stock market, through GDR issue, funds can be raised in any country’s stock market except USA
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