ADR-GDR

AGENDA
Introduction
Eligibility
Issue, Trading & Redemption
Dual Fungibility
Trading & Settlement
Sponsored ADR
Case Study Sterlite Industries

Introduction

DEPOSITORY RECEIPTS
Are negotiable U.S. securities that generally represent
a non-U.S. company's publicly traded equity or debt.
The increasing demand for Depositary Receipts is
driven by the desire of individual and institutional
investors to diversify their portfolios, reduce risk and
invest internationally in the most efficient way
possible.
Depositary Receipts are created when a broker
purchases the non-U.S. company's shares on the
home stock market and delivers those to the
depositary's local custodian bank, which then instructs
the depositary bank, such as The Bank of New York,
to issue Depositary Receipts.

GDR
GDRs are securities available in one or more
markets outside the companys home country.
The basic advantage of the GDRs, compared to the
ADRs, is that they allow the issuer to raise capital on
two or more markets simultaneously, which
increases his shareholder base.
GDRs are typically denominated in USD, but can
also be denominated in Euros. GDRs are commonly
listed on European stock exchanges.

CONTD..
London is the most important DR center outside the
US.
Depositary receipts listed and traded in London are
of two types: Professional DRs and Retail DRs.
The Professional DRs are traded by institutional
investors, and the Retail DRs are available to all
investors and thus have to offer a higher level of
protection.

ADR
An American Depositary Receipt represents
ownership in the shares of a foreign company
trading on US financial markets.
Each ADR is issued by a US depositary bank and can
represent a fraction of a share, a single share, or
multiple shares of foreign stock.
The first ADR was introduced by JP Morgan in 1927,
for the British retailer Selfridges & Co.
The largest depositary bank is the Bank of New
York.

TYPES OF ADR PROGRAMS

Unsponsored shares
ADRs that trade on the over-the-counter (OTC)
market.
Have no regulatory reporting requirements and
are issued in accordance with market demand.
The foreign company has no formal agreement
with a custodian bank and shares are often issued
by more than one depositary. Each depositary
handles only the shares it has issued.

CONTD..
Level I Depository Receipts
Lowest sponsored shares that can be issued.
Can only be traded on the OTC market and the
company has minimal reporting requirements
with the U.S. Securities and Exchange
Commission (SEC).
The company is not required to issue quarterly or
annual reports.
Companies with shares trading under a Level 1
program may decide to upgrade their share to a
Level 2 or Level 3 program for better exposure in
the U.S. markets.

CONTD..
Level II (Listed) Depository Receipts
The foreign company must file a registration
statement with the SEC and is under SEC
regulation.
In addition, the company is required to file a
Form 20-F annually. Form 20-F is the basic
equivalent of an annual report (Form 10-K) for a
U.S. company.
Advantage: shares can be listed on a U.S. stock
exchange.
While listed on these exchanges, the company
must meet the exchanges listing requirements.

CONTD..
Level III (Offering) Depository Receipts
Company is actually issuing shares to raise
capital.
In accordance with this offering, the company is
required to file a Form 20-F, which is the format
for an Offering Prospectus for the shares. They
also must file a Form F-6 annually.
In addition, any material information given to
shareholders in the home market, must be filed
with the SEC through Form 8K.
Restricted Programs
Stock is limited to trading by certain individuals.

CONTD..
Privately Placed and Offshore (SEC Rule 144A /
Regulation S) Depositary Receipts
A company can also access the U.S. and other
capital markets through SEC Rule 144A and/or
SEC Regulation S Depositary Receipt facilities
without SEC registration. Rule 144A programs
provide for raising capital through the private
placement of Depositary Receipts with large
institutional investors (such as QIBs) in the
United States.

ADVANTAGES OF A DR
For Issuers
A DR program can stimulate investor interest
enhance a companys visibility, broaden its
shareholder base, and increase liquidity.
DRs can provide enhanced communications with
global investors and shareholders.
ADRs provide an easy way for US employees of
non-US companies to invest in their companies
employee stock purchase plans.
Vehicle for mergers and acquisitions.

ADVANTAGES OF A DR
For Investors
DRs make it easy to purchase and hold a non-US
issuers securities
DRs trade easily and conveniently in dollars and
settle through US/ international clearing houses.
Publicly traded DRs are registered with the
international regulators. For e.g. Level II and
Level III ADRs may be registered with the US
Securities and Exchange Commission (SEC).
Diversification without many of the obstacles that
mutual funds, pension funds and other
institutions may have in purchasing and holding
securities outside of their local market.

A COMPARISON BETWEEN
ADR & GDR

Eligibility

Eligibility Criteria
Up to USD 50 Million under the Automatic route
From USD 50 -100 Million, the companies have to
take RBI approval
From USD 100 Million and above, prior permission
of the Department of Economic Affairs is required.

Companies Act
The Company should pass a Board resolution
for taking a decision for issue of ADR/GDR.
Approval u/s 81 Further issue of Capital.
Approval u/s 94 Power of limited company to
alter its share capital.
Approval u/s 16 Alteration of Memorandum.
Approval u/s 31 Alteration of Articles.

MOF/RBI

ADR/GDR issue shall be treated as Direct

Foreign Investment.
Aggregate Foreign Investment would need to
conform to existing FDI Policy.
Private placement GDRs eligible for automatic
approval - Issue is lead managed by an
Investment Banker, registered with Financial
Services Act, UK or appropriate regulator
authority in Europe, Singapore or Japan.

Contd

Issue Related Expenses

Both fixed expenses like underwriting
commissions, lead managers charges,
legal expenses and other reimbursable
expenses shall be subject to a ceiling as
follows:
4% in the case of GDRs
7% in the case of listing on US
Exchange (ADRs).
2% in case of Private Placement.

Contd
Furnishing of Information's

Within 30 days of completion of transaction company

would furnish following to Exchange Control
Department of the RBI
Amount raised through ADRs / GDRs
Number of ADRs / GDRs issued
Underlying shares offered
% of foreign equity level in the Indian Company on
account of issue of ADRs/GDRs
Details of repatriation, etc.

Sectoral Cap on Investment

Private Sector Banking
NBFC

Insurance
Telecommunications
Petroleum Refining (Pvt. Sector) Housing & Real Estate
Power
-

49%
100%
26%
49%
100%
100%
100%

Stock Exchange

In Principal Approval before Issue and

allotment.
Final Listing and Trading approval after
allotment.
Allotment and upload of Credit to Domestic
Custodian.

Issue, Trading &

Redemption

Intermediaries

Merchant Bankers / Lead Manager

Underwriters
Overseas Depository
Domestic Custodian
Bankers
Solicitors

OPERATIONAL PROCEDURE
Preparation of Financial statements in
compliance with IAS/Norms.
Due Diligence exercise.
To decide with Lead Manager.
Public/Private Placements
Number of GDRs to be issued
Issue Price
Draft the Prospectus/Offer documents
File Prospectus/Offer document

Contd
Apply to Depositories for ISIN
Sign Tripartite Agreement
Listing applications to SE
Finalise basis with RTI/LM/SE
List of rejects & reasons for rejections
Reconciliation statement & Final Certificate
Master creation form giving details of allotment
Board resolution for allotment

TRANSFER & REDEMPTION

A non-resident holder of GDR may transfer those
receipts, or may ask the ODB to redeem those
receipts.
In the case of redemption, ODB shall request
DCB to get the corresponding underlying Share
released in favour of the non-resident investor, for
being sold directly on behalf of the non-resident,or
being transferred in the books of account of the
issuing co. in name of non-resident.

Contd
In case of redemption of the GDR into underlying
Share a request for the same will be transmitted
by the ODB to DCB of India, with copy to issuing
co.
The cost of acquisition of the shares underlying
the GDR shall be reckoned as the cost on the
date on which the ODB advises the DCB for
redemption.
Price of ordinary Share of the issuing co.
prevailing in BSE/NSE on date of advice of
redemption shall be taken as the cost of
acquisition of the underlying ordinary Share

DUAL FUNGIBILITY

Two Way Fungibility

Max.limit of re-issuance of ADRs/GDRs.
Re-conversion and FII portfolio
investments
Monitoring of re-issuance
Certificate to both RBI & SEBI that
Sectoral caps are not breached.
Process Flow Trading and Settlement
Head Room
Funds through normal banking channels

TRADING AND SETTLEMENT

Non
Resident
Investor

Domestic
Broker

Domestic
Custodian

4
5
Broker
buys shares

Overseas
Depository

Earmarks
against
available
Headroom

Head Room
Head Room is the extent to which Depository Receipts
can be issued under Two Way Fungibility with respect
to the specific company.
Head Room

Number of ADRs/GDRs
originally issued minus
number of ADRs/GDRs
outstanding further
adjusted for ADRs/GDRs
redeemed into underlying
shares and registered in
the name of the nonresident investor(s)

Illustration
Original Issuance
Cancellations
Outstanding
Cancelled but shares not sold
Head Room

15 mn DRs
05 mn DRs
10 mn DRs
01 mn DRs

=
15-10-1
=
4 mn DRs
The same is however subject to the Sectoral Cap
applicable to the Company

Sponsored ADR

SPONSORED ADRS
Sectoral Cap =
Limits
49% + 25% =
74%
Offer made by Company to all Shareholders.
The sponsoring company will give an option to all
its shareholders indicating the number of
shares to be divested and the mechanism how
the price will be determined under the
ADR/GDR norms.
Regulations governing the Sponsored ADR
Sponsored ADR Schedule of Activities

REGULATIONS
RBI FEMA Notification No.412001-RB dated
March 2, 2001
MOF Notification No.152399 NRI dated July 29,
2002
RBI circular A.P. (DIR Series) Circular No.52
dated November 23, 2002
SEBI notification dated May 14, 2003

SCHEDULE of ACTIVITIES
Board Approval

Shareholders Approval

FIPB Approval

Prepare Offer Documents

-Invitation to Offer
-Letter of Transmittal
Appointment of
1. Collection Centers
2. Escrow Agent
3. Underwriters

Despatch of documents
to shareholders atleast
48 hrs before Offer opens

Contd
Shareholders to tender
shares in Escrow Account

Submit documents including

Transfer Instruction for Delivery
(TIFD) to Collection Centers

Collection Centers to forward

all documents to R&T Agent

Offer Close

R & T Agent to
verify documents

Contd
R & T Agent to
verify documents

Retain valid ones

Registration of ADR
With US SE draft Preliminary
Prospectus issued by
Underwriters

Reject incomplete

Send information to
Escrow Agent to
Transfer back to
Shareholder

SCHEDULE OF ACTIVITIES
Appointment of legal experts, lead managers, investment
bankers and their due diligence.
Preparation of the offer document and its vetting by legal
counsels.
Filing of the offer document and its review by SEC.
Replying to the comments of SEC and obtaining its
clearance.
Road Show for the ADR Offering.
Entering into an agreement by underwriters.
Selection of an American Stock Exchange.
Price determination by Underwriters and creation of ADSs

Contd
Delivery of ADSs to Investors.
Underwriters to remit the proceeds less fees and expenses to
Escrow Agent within a period of one month of the closure of the
issue
The issue related expenses for public issue shall be subject to a
ceiling of 4% in the case of GDRs and 7% in the case of ADRs
and 2% in case of private placements of ADRs/GDRs. Issue
expenses beyond the ceiling would need the approval of RBI.
Escrow Agent to distribute the amount in proportion to the number
of Deposited Equity Shares accepted.
After completing the transactions, the companies would need to
furnish full details of the issue to the Exchange Control
Department of the Reserve Bank of India, Central Office, Mumbai
within 30 days of completion of such transactions.

Case Study on ADR

ADR - Sterlite Industries Ltd.

A. Companys Info
Companys Name

Sterlite Industries (India) Limited

Industry

Metal & Mining

Management

Kuldip K. Kaura

Company

Indias largest non-ferrous metals and mining company based on net sales

USP

Low cost of production making with leading market share in India in all
three of their primary business lines, Copper, Zinc and Aluminum
production

B. Objective of Issue
Expanding investor base; which shall
improvise liquidity of share
increase companys visibility
increase in market demand increase price of share
Help in funding a takeover - Acquiring complementary businesses
Reduction of debt in an amount of up to Rs. 6,465 million ($150.0 million).
Entering the commercial power generation business - 2,400-megawatt power plant in eastern
Orissa state that will cost about $1.9 billion
Buy the government's 29.5 percent stake in Hindustan Zinc Ltd.

ADR - Sterlite Industries Ltd.

B. Process
B.1. Complying Indian Regulations
BOD approval

Approval given by Board on Nov. 15 by headed by Kuldip Kumar

Share-holder Approval

Extra-ordinary general meeting of the company - December 11

NSE & BSE approvals

On February 22, 2007 and February 27, 2007, obtained in-principle

approvals from BSE & NSE resp.

Changes in MoA &

AoA

Re-classify its existing authorised share capital of Rs 150 crore into

Existing: 60 crore equity shares @ Rs 2 each & 3 crore preference
shares @ Rs 10 each
Converted into: 75 crore equity shares @ Rs 2 each.
B.2. Complying with SEC

Form F-6

A Basic form to register ADR

Submitted on: December 4, 2006

Form 20-F

An annual filling containing detailed financial disclosure.

Form F-1 filing

To register the equity securities underlying ADR that are offered in US for
1st time, the offering price & plans for distributing shares
Last amended June. 14

ADR - Sterlite Industries Ltd.

B.3. Appointment of Parties
Depositary Bank:

Citibank, N.A.

Local Custodian Bank

Citibank, Mumbai

Appointment of Underwriters

Merrill Lynch, Pierce,

Fenner & Smith Incorporated,
Morgan Stanley & Co.
Citigroup Global Markets Inc.

B.4. Other Formalities

Pricing of issue

Price not less than the higher than 5% or less than 10% of the
following two averages (weekly high and low of the closing
prices )
During the six months or
2-week average
In our case, It comes to 13.6

Road show

The management of company went for road show across USA,

Japan & other markets

ADR - Sterlite Industries Ltd.

C. Issue Details
Issue Size
(No. of Shares)

150,000,000 equity shares in the form of ADS

130,440,000 ADSs in NYSE
It includes 11,500,000 ADSs in Japanese Public Offering
Exercised 15% of Green shoe option -additional
19,560,000 ADSs from us to cover over-allotments

Face value

Par value Rs. 2 per equity share

Price:

$13.44 per ADS.

Total Issue Size

US$ 2,016 million

Post-issue equity shares

outstanding:

708 million

ADSs share of total postoffering:

21.2% interest

ADR ratio:

1 ADRs : 1 ordinary share

Ticker Symbol:

SLT

Issue Expense:

$1.65 billion included underwriting discounts and commissions

and estimated offering expenses

Fungibility

Dual Fungibility

ADR - Sterlite Industries Ltd.

D. Listing Details
Listed Share

113.5 million - NYSE

11.5 million unlisted in Japan.

Listing Date

19/06/07

Listing Price

14.7

Last Trading Price & Volume

15.27 - 1,472,900

Thank You !!!!!!