Description

Depositary Receipts Presented by: Rajesh Kumar MBA(Finance), ACS, AIII

Depositary A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form at the request of the shareholder through the medium of a Depository Participant If an investor wants to utilize the services offered by a Depository, the investor has to open an account with the Depository through a Depository Participant.

Depositary Receipt A Depositary Receipt is a negotiable security that represents an ownership interest in securities of a foreign issuer typically trading outside its home market. Depositary Receipts are created when a broker purchases a foreign company’s shares on its home stock market and delivers the shares to the depositary’s local custodian bank, and then instructs the depositary bank to issue Depositary Receipts. In addition, Depositary Receipts may also be purchased in the secondary trading market. They may trade freely, just like any other security, either on an exchange or in the over-the- counter market and can be used to raise capital. ADRs were the first type of depositary receipt to evolve. They were introduced in 1927 in response to a law passed in Britain, which prohibited British companies from registering shares overseas without a British-based transfer agent.

• DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc. • DRs listed and traded in US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In Indian context, DRs are treated as FDI

INTERNATIONAL CAPITAL MARKET INTERNATIONAL BOND MARKET INTERNATIONAL EQUITY MARKET EURO BOND FOREIGN BOND GDR ADR

Issued by one depository appointed by the company under a Deposit Agreement or service contract May be issued in different levels (level I, II or III) Company bears all expenses New capital may also be raised under this option Set up at the request of 3rd party without any formal agreement with company Issued by one or more depositories in response to market demand 3rd party pays all set up and maintenance expenses No new capital is raised Types of DRs Sponsored DRs Unsponsored DRs

Level I ADR Over-the-Counter (OTC) Traded Level I GDR Unlisted Level II ADR U.S. Listed Level II GDR Internationally Listed Selling New Shares (Capital Raising Transactions) Level III ADR U.S. Listed Level III GDR Internationally Listed Existing Shares Only (Non-Capital Raising Transactions) Issuer Rule 144A — Rule 144A ADR, or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A. Under this program, DRs are privately placed in the U.S. to Qualified Institutional Buyers (QIBs) Regulation S – Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S

AMERICAN DEPOSITORY RECEIPTS • ADR is a dollar-denominated negotiable certificate. It represents a non-US company’s publicly traded equity. It was devised in the late 1920s to help Americans invest in overseas securities and to assist non-US companies wishing to have their stock traded in the American Markets. • ADR were introduced as a result of of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values.

Levels of ADR • Level 1- Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent. • Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission [SEC]. • Level 2- Level 2 depositary receipt programs are more complicated for a foreign company. When a foreign company wants to set up a Level 2 program, it must file a registration statement with the U.S. SEC and is under SEC regulation.

• The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX). • Level 3- A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. companies. • Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital

What is a GDR? • It is an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to Non- resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of Issuing Company.

Eligibility for Issue of GDRs • An Indian corporate can raise foreign currency resources abroad through the issue of Global Depository Receipts (GDRs). Regulation 4 of Schedule I of FEMA Notification no. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs.

DIFFERNCE BETWEEN ADR & GDR ADR GDR American depository receipt (ADR) is compulsory for non –us companies to trade in stock market of USA. Global depository receipt (GDR) is compulsory for foreign company to access in any other country’s share market for dealing in stock. ADRs can get from level 1 to level III. GDRs are already equal to high preference receipt of level II and level III. ADRs up to level –I need to accept only general condition of SEC of USA. GDRs can only be issued under rule 144 A after accepting strict rules of SEC of USA. ADR is only negotiable in USA. GDR is negotiable instrument all over the world Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ Investors of UK can buy GDRs from London stock exchange and luxemberg stock exchange and invest in Indian companies without any extra responsibilities.

ADVANTAGES OF ADR/GDR • Can be listed on any of the overseas stock exchanges /OTC/Book entry transfer system. • Freely transferable by non-resident. • They can be redeemed by ODB. • The ODB should request DCB to get the corresponding underlying shares released in favor of non resident of investors. (Shareholders of issuing companies).

Benefits to the Company • Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity, which may increase or stabilize the share price • Enhanced visibility and image for the company’s products, services and financial instruments in a marketplace outside its home country

Company Benefits (cont’d) • Flexible mechanism for raising capital and a vehicle or currency for mergers and acquisitions • Enables employees of U.S. subsidiaries of non-U.S. companies to invest more easily in the parent company

Benefits to the Investor • Quotation in U.S. dollars and payment of dividends or interest in U.S. dollars (or in general, a persons home currency) • 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

Investor Benefits (cont’d) • Elimination of global custodian safekeeping charges, potentially saving Depositary Receipt investors up to 10 to 40 basis points annually • Familiar trade, clearance and settlement procedures

Investor Benefits (cont’d) • Competitive U.S. dollar/foreign exchange rate conversion for dividends and other cash distributions • Ability to acquire the underlying securities directly upon cancellation

Conditions for Issue of GDRs • The GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time. • A GDR is permitted by RBI under Automatic Route subject to the sectoral caps as specified vide Press Note No.14 (1997 series) dated 8th October 1997 issued by the Government of India, Ministry of Industry.

Conditions for Issue of GDRs contd… • The company not covered under the Automatic route, would need to obtain prior Government clearance through FIPB. • There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets. • There is no limit up to which an Indian company can raise GDRs. • There is no restriction on the number of Euro-Issues to be floated by a company or a group of companies in a financial year.

Conditions for Issue of GDRs contd… • Indian Companies engaged in the following sectors were 80% of turnover is from these sectors in 3 previous financial years can issue GDRs to their Non-Resident/Resident Permanent Employees and also to their subsidiary Companies: a Information Technology and Entertainment Software. b Pharmaceuticals cBio Technology • These Companies can also acquire overseas companies in their respective areas of business through stock swap as per the guidelines issued by the government

Conditions for Issue of GDRs contd… • GDR can be issued in any convertible foreign currency. • The GDRs and the Shares to be represented by such GDRs will not be offered, sold or delivered within the United States or to or for the benefit of US persons as per the United States Securities Act of 1933, as amended (the Securities Act) for a period of 40 days from the date of opening of the Issue. • The GDRs may not be offered or sold directly or indirectly in the Republic of India (India) or to, or for the account or benefit of, any resident of India.

Agencies Involved in the GDR Issue • Lead Manager -The firm should be registered with the appropriate regulatory authority in Europe/ Singapore or Japan. • Depository – Is an Overseas Bank authorised by the Issuing Company to Issue the GDRs. • Listing Agent — Is a person who is responsible for the listing of the GDRs at any of the recognized Overseas Stock Exchanges. Generally the Depository also acts as the Listing Agent.

Agencies Involved in the GDR Issue contd… • Custodian — It is the domestic Bank who holds the underlying shares/ Bonds Issued against the GDRs. • Indian Legal Counsel — It is a firm that undertakes the Legal and Financial Due Diligence of the Issuing Companies on behalf of the Lead Manager. It also assists the Company in preparation of the Information Memorandum/ offer document for submitting it with the Overseas Stock Exchange.

Agencies Involved in the GDR Issue contd… • UK Counsel — An overseas legal person who based on the Due Diligence Report of the Indian Counsel submits its report to the Overseas Stock Exchange. They also assist the Lead Manager in preparation of the various documents such as the Deposit Agreement, Subscription Agreement and vet the Information Memorandum (IM). • Escrow Agent — An Overseas Bank where an Escrow Account has to be opened for deposit of the monies received from Investors against the GDR Issue till the Final Listing Approval is obtained from the Overseas Stock Exchange

Procedure for Issue of GDRs • Convene a Board Meeting to approve the proposed GDR Issue for not exceeding certain value in foreign currency. • Convene the EGM for the approval of the shareholders for the proposed GDR Issue under Sec 81(1A) of the Companies Act, 1956. • Identify the Agencies • Convene a Board Meeting to approve the Agencies. • Appoint the Agencies and sign the Engagement Letters. • The Indian Legal Counsel to undertake the Due Diligence.

Procedure for Issue of GDRs contd… • Prepare the first draft of the IM in consultation with the Indian Legal Counsel and submit the same to various Agencies for their comments thereon. • Prepare the 2nd/3rd draft of IM incorporating the comments. • The Listing Agent to submit the IM with the overseas Stock Exchange for their comments and In principle Listing Approval. • Simultaneously submit draft IM to the Indian Stock Exchanges where the Issuing Company’s shares are listed for In principle approval for listing of the underlying shares.

Procedure for Issue of GDRs contd… • Hold Board Meeting to approve the Deposit Agreement, Subscription Agreement and the Escrow Agreement. • On receipt of the comments on the IM from the Overseas and Indian Stock Exchanges incorporate the same and file the final IM with Overseas Stock Exchange and obtain Final Listing. • The Issuing Company can open the Issue for the GDR on receipt of the In principle Listing Approval from the Overseas and the Indian Stock Exchanges.

Procedure for Issue of GDRs contd… • Open the Escrow Account with the Escrow Agent and execute the Escrow Agreement. • In consultation with the Lead Manager to finalize — whether the GDR will be through public or a private placement, — the number of GDRs to be issued. — the issue price. (the Issue price is normally 5-10 % discounted prevalent market price of the shares of the Issuing Company one day prior to the opening of the GDR Issue. — number of underlying shares to be issued against each GDR.

Procedure for Issue of GDRs contd… • On the day of the opening of the Issue execute the Deposit and Subscription Agreements. • The Issue should be kept open for a minimum period of 3 working days. • Immediately on closing of the Issue convene a Board/ Committee Meeting for allotment of the underlying shares against the Issue of the GDRs. • Then Deliver the share certificate to the Domestic Custodian Bank who will in terms of the Agreement instruct the Overseas Depository Bank to Issue the GDR to Non Resident Investor against the shares held by the Domestic Custodian Bank.

Procedure for Issue of GDRs contd… • On receipt of Listing Approval from Overseas Stock Exchange submit the required documents for Final In principle Listing approval from Indian Stock Exchange. • After GDRs are listed the Lead Manager to instruct the Escrow Agent to transfer the Funds to the Company’s Account. • The Company can either remit the entire funds or in part as per its discretion.

Procedure for Issue of GDRs contd… • On obtaining the Final Approval from Indian Stock Exchanges admit the underlying shares to the depository i.e. NSDL and CDSL. • Obtain Trading approval. • Intimate the Custodian for converting the physical shares into Demat.

Other Reporting Compliances and Issues • Within 30 days of the closing of the GDR issue, details of the GDR Issue along with the IM should be submitted to — the Ministry of Finance. — the Registrar of Companies — SEBI • Return of Allotment in Form 2 is to be filed with ROC within 30 days of Allotment. • Annexure C is to be filed with RBI, Central office within 30 days of closure of the GDR Issue.

Other Reporting Compliances and Issues • The Company should furnish quarterly return in Annexure D to the RBI, Central office for every calendar quarter. • The Issue related expenses (covering both fixed expenses like underwriting commissions, lead managers charges, legal expenses and other reimbursable expenses) shall be subject to a ceiling of 4% in the case of GDR. • The GDR holders shall not have any voting rights.

Conversion and Transfer of GDRs • The holder of the GDR can transfer/sell the GDR in the Overseas Stock Exchange or request the Depository to cancel the GDR and release the underlying shares to his account. • On acquiring the shares, the GDR holder becomes the member of the Company and he can trade his shares in the Indian Stock Exchanges. • A registered broker in India may, with the permission of the custodian purchase shares of an Indian Company on behalf of a person resident outside India in the recognized Stock Exchange in India and deposit the same with the custodian for the purpose of converting the shares into GDRs.

Conversion and Transfer of GDRs contd… • the number of shares so purchased shall not exceed GDRs converted into underlying shares and shall be subject to sectoral caps as applicable.

Issuer Depository At the time of offering…  Prepare documentation working with advisors  Interact with listing authority and respond to all questions  IR/ PR targeted program Ongoing…  Provide depositary and custodian with notices of dividends, rights offerings and other corporate actions, including meeting notices  Ongoing compliance with stock exchange and international regulations, including disclosure and reporting  Execute internationally-focused investor relations plan  Keeps market informed of developments through PRs  Regular meetings with institutional investors holding company DRs At the time of offering…  Provide advice/ perspective on type of program, exchange or market on which to list or quote and advise on DR ratio  Appoint custodian  Coordinate with all parties for timely launch  Coordinate with legal counsel on Deposit  Agreement and securities law matters, as appropriate  Announce DR program to market Ongoing…  Coordinate with issuer to announce and process corporate actions such as dividends and shareholders’ meetings  Work with Issuer to maintain active DR program

Legal Counsel At the time of offering…  Prepare (issuer counsel) and/or review (depositary counsel) offering circular and interact with authorities  Prepare draft deposit agreement (depositary bank’s counsel)  Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels) Ongoing…  Manage compliance with securities laws, rules and regulations and perfect any securities law exemptions  Provide corporate action support, whenever required I-Banks / Underwriters At the time of offering…  Advise on size, pricing and marketing of offering, type of program to launch and exchange or market on which to list or quote, and ratio of depositary shares to ordinary shares  Act as placement agent or underwriter in offering  Conduct road shows with management/ introduce issuer to institutional and other investors  Line up selected dealers and co-underwriters Ongoing…  Cover issuer through research reports/ promote DRs to investors  Advise on road shows, invest or meetings, investors to target

Custodian At the time of offering…  Receive local shares in issuer’s home country and confirm receipt Ongoing…  Hold shares in custody for the account of depositary  Receive and deliver shares in accordance with depositary’s instructions Investor Relation Firm At the time of offering…  Develop long-term plan to raise awareness of issuer’s program in markets in which GDRs will trade  Develop communications plan and information materials for launch activities (road show and presentations to investors, launch day promotion, meetings with financial media) Ongoing…  Coordinate with issuer’s advertising and public relations teams on specific program plans to support and develop company image  Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets  Arrange regular meetings for issuer with investors to keep them informed of developments/ results Accountants At the time of offering…  Prepare company’s accounts for insertion into the prospectus  Review prospectus and interact with authorities Ongoing…  Audit and prepare accounts

Each DR is backed by a specific number of an Issuer’s local shares (or a fraction thereof). This is called the DR ratio. The ratio is designed to set the price of each DR in a price range that is competitive with the Issuer’s international peer group or the peer group on the exchange on which the DR trades. DRs are most commonly priced between $7 and $20. The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over $20 (e.g. $50) or if it falls substantially below $7. Changing the ratio allows the Company to keep its DR price in line with its peers and maintain investor interest. Note: In case the DR ratio is unity, then the depository receipts are also referred to as depository shares

NYSE listing requirements The issuer must meet each of the following criteria, determined on a worldwide basis: Pre-tax income of $100 million cumulative for the last 3 years Minimum pre-tax income of $25 million in each of the 2 most recent years In addition, the issuer must meet either of the following two criteria: Global market capitalization of $500 million together with revenues of $100 million for the most recent 12-month period and aggregate cash flow of $100 million for the last 3 years with a minimum of $25 million in each of the 2 preceding years; or Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year.

Domestic listing standards – NYSE Size and earnings The issuer must meet one of the following criteria: • „ Aggregate pre-tax earnings of $10 million cumulative for the last 3 years with a minimum of $2 million in each of the 2 most recent years; or

Size & Earnings Continue Not less than $500 million of global market capitalization together with revenues of $100 million for the most recent 12-month period and aggregate operating cash flow of $25 million for the last 3 years with a positive amount in each year; or Global market capitalization of $750 million together with revenues of $75 million for the most recent fiscal year. In addition, the market value of publicly traded shares must equal or exceed $100 million ($60 million for IPOs, spin-offs, carve-outs).

Listing fees for the NYSE Original listing fees: Minimum of $150,000 to maximum of $250,000, based on the number of ADRs outstanding. Annual continuing fees: Based on the number of ADRs outstanding, subject to a minimum of $38,000. The total fees that can be billed to an issuer in any calendar year are capped at $500,000. These fees apply to both US and foreign listed companies.

NASDAQ NASDAQ National Market • Size & Earnings • The issuer must meet one of the following 3 alternative criteria: 1. Stockholders’ equity of at least $15 million together with pre-tax income from continuing operations of at least $1 million in latest fiscal year or in two of the last three years and public float having a market value of $8 million; or

Size & Earnings Continue 2. Stockholders’ equity of at least $30 million together with public float having a market value of $18 million; or 3. Public float having a market value of $20 million together with either (i) listed securities having a market value of $75 million or (ii) $75 million in total assets and $75 million in total revenues.

Listing Fees • Original listing fees for ADR issuers range from $100,000 to $150,000 based on the number of ADRs issued and outstanding. • Annual continuing fees for ADR issuers range from $21,225 to $30,000 depending on the number of ADRs issued and outstanding.

NASDAQ Capital Markets Size and earnings The issuer must meet one of the following 3 alternative criteria: 1. Stockholders’ equity of at least $5 million; or 2. $50 million in market value of listed securities; or 3. $750,000 in net income from continuing operations in latest fiscal year or in two of the last three fiscal years.

Listing Fees • Original listing fees for ADR issuers range from $25,000 to $50,000 depending on the total number of ADRs issued and outstanding. • Annual continuing fees for ADR issuers range from $17,500 to $21,000 depending on the total number of ADRs issued and outstanding.

• Transferability of the Underlying Shares & GDRs: The shares underlying the GDRs as well as GDRs itself must be freely transferable, fully paid and free from any liens & restrictions on transfer. • Free float requirement: 25% of the GDRs must be in public hands. This 25% should not include any investor taking more than 5%. • Admission to trading on a Recognized Stock Exchange. • Market capitalization: The expected aggregate market value of all GDRs to be listed must be at least £700,000. The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned. • Continuing obligations: Various ongoing obligations on the part of issuing company include: • Publication of an annual financial report within four months of its year end. • Publication of price sensitive information to enable investors to trade in a knowledgeable manner. * These are specifically applicable to companies seeking to list its GDRs on LSE

A prospectus is the company’s information and sales document which enables market participants to create opinions and decide whether to participate in the offering. A DR prospectus must include the necessary information that enables investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Company and, the rights attached to the DRs. An operating and financial review, audited financial information for the last three financial years or such shorter period as the Company has been in operation. In case the prospectus is more than nine months after the end of last financial year, unaudited half year accounts will also be included. The prospectus also requires details of any material contracts. Prospectus should also include a summary describing the Company that includes any risks associated with investing in the Company.

Indian Companies using ADR/GDR COMPANY ADR GDR 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 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

Why do Indian Co’s opt for GDR Through an ADR, companies can only tap the American markets, while GDRs give the companies more flexibility in terms of markets. European markets are more liberal than the American markets. Companies get more flexibility in terms of currencies as well. Companies here want to capitalise on foreign investor interest as much as possible. The need of Indian corporates for funds is so huge and with debt being very expensive.

IDR Indian Depository Receipts (IDRs), the Indian counterparts of ADRs or GDRs were introduced in 2004, stipulated in the Companies (Issue of Indian Depository Receipts) Rules, 2004. IDR is a derivative instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company. In the year 2000, Section 605 A of the Companies Act, 1956 was introduced and it is the first step to give foreign companies access to raise capital via the Indian stock market was taken.

Offer of Indian Depository Receipts. Not withstanding anything contained in any other law for the time being in force, the Central Government may make rules applicable for- (a) the offer. of Indian Depository Receipts; (b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipts; (c) the manner. in which the Indian Depository Receipts shall be dealt in a depository mode and by custodian and underwriters; (d) the manner of sale, transfer or transmission of Indian Depository Receipts. by a company incorporated, or to be incorporated outside India, whether. the company has or has not been established or, will not establish any place of business in India.

The second step was taken in 2004 when the Indian Depository Receipt rules were framed. Finally SEBI has taken the third step on April 3rd 2006, in the back drop of the Indian stock exchanges boom, by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines, by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying shares. Issuers Eligibility Criteria. Must have an average; turn over of US$ 500 million during the previous 3 financial years. Must have capital and free reserves which must aggregate to atleast US$100 million. Must be making a profit for the previous 5 years and must have declared a dividend of 10% in each such year. The pre issue debt-equity ratio must be not more than 2:1. Must be listed in its home country. Must not be prohibited by any regulatory body to issue securities Must have a good track record with compliance with securities market regulations. Must comply with any additional criteria set by SEBI.

Who can Invest? Indian Companies Qualified Institutional Buyers NRI’s and FII’s with permission of the Reserve Bank Of India. The Issue The minimum issue size is Rs. 50 crores, 90% of the issue must be subscribed. Automatic fungibility is not permitted. The following conditions would also apply: In one financial year the market cap cannot exceed 15 % of the paid up capital and free reserves of the issuer Redemption into underlying shares is prohibited for 1 year, beginning the issue date. Repatriation of proceeds is subject to Indian foreign exchange laws, prevailing at time of repatriation. The issue must be in rupees. The issuer is subject to Clause 49 of the listing agreement.

Rights of IDR holders An IDR holder will be entitled to rights on an equitable basis vis-à-vis the rights of shareholders of the issuer company in its home country. Some of the rights of the IDR holders include: − Voting. − Entitlement to bonus issues. − Entitlement to dividends. − Participation in rights issues. − Participation in sub-divisions and consolidations of underlying equity shares. − Participation in other distributions and corporate actions.

Listing & trading Listed on the Stock Exchanges. Allotted to investors in demat form. Will be traded in demat form. The trading and settlement process of IDRs is like that of equity shares of Indian companies. Can convert IDRs into underlying equity shares only after 1 year and with the prior approval of the RBI. Upon such conversion, resident individual investors are allowed to hold the underlying equity shares only for the purpose of sale within a period of 30 days from the said conversion. Conversion of equity shares into IDRs is not permitted under current regulations i.e. reverse fungibility is not allowed.

How does ADR/GDR work. • Let us take Patni example – trades on the Indian stock at around Rs.460/- • This is equivalent to US$ 10 – assume for simplicity • Now a US bank purchases 10000 shares of Patni and issues them in US in the ratio of 10:1 • This means 1 ADR purchased is worth 10 Patni shares. • Quick calculation means 1 ADR = US $100 • Once ADR are priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary shares.

In Simple terms — ADR / GDR ISSUE COMPANY SHARE DEPOSITARY BANK INVESTOR

DR Issuance Process U.S. Broker 6 SENSEX Depository (JP Morgan, NY) India Broker Local Custodian (JP Morgan, Mumbai) U.S. Investor 7 1 2 3 4 5 Investor contacts broker and requests the purchase of shares of a DR issuer company. If existing DRs of that company are not available, the issuance process begins. To issue new DRs, the broker contacts a local broker in the issuer’s home market. The local broker purchases ordinary shares on an exchange in the local market. Ordinary shares are deposited with a local custodian. The local custodian instructs the depositary to issue DRs that represent the shares received. The depositary issues DRs and delivers them in physical form or book entry form. The broker delivers DRs to the investor or credits the investor’s account. 1 2 3 4 5 6 7

DR Cancellation Process U.S. Investor DR Broker 2 Depository (JP Morgan, NY) 3 Local Custodian (JP Morgan, Mum) 4 Local Broker The investor instructs the broker to cancel DRs. The broker delivers the DRs to the depositary for cancellation. The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the seller’s broker in the issuer’s home market. The local custodian delivers the underlying ordinary shares as instructed to the local broker. The local broker safe keeps the ordinary shares or delivers them to or on behalf of the new investor. 1 2 3 4 1

Standard Chartered PLC IDR issue •The issue opened for subscription by investors on May 25, 2010 and closed on May 28, 2010. • subscribed 2.20 times •The company came out with 240,000,000 INDIAN DEPOSITORY RECEIPTS (including Anchor investor portion of 36,000,000 IDRs) at a price range of Rs 100 to Rs 115 through 100% Book Building process. •The issue received total bids for 449705000 IDRs against the offer of 204000000 IDRs resulting in a subscription of 2.20 times. The issue has received bids for 14507200 IDRs at cut-off price. •UBS Securities India Private Limited and Goldman Sachs (India) Securities Private Limited were the Global Coordinators and Book Running Lead Managers to the IDR issue. •JM Financial Consultants Private Limited, DSP Merrill Lynch Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the issue. •Standard Chartered STCI Capital Markets Limited is the Co-Book Running Lead Manager to the issue. •JM Financial Services Private Limited, Kotak Securities Limited, SBICAP Securities Limited and ICICI Securities Limited are the Syndicate Members to the issue. •Karvy Computershare Private Limited is the registar to the company. •The market lot is 200 IDRs and the Minimum Order Quantity is 200 IDRs. The Maximum Subscription Amount for Retail Investor was Rs.100000.

The details of the Issue Subscription are given below Category Shares offered Shares Bid Subscription ratio QIB 84000000 348394400 4.1476 NII 43200000 82150400 1.9016 Retail 72000000 18210200 0.2529 Employee 4800000 950000 0.1979 Total 204000000 449705000 2.20

Major Countrywide ADR-GDR Issues CLICK HERE TO SEE INDIAN DR’S LIST

Amount of Capital Raised ( In Billion USD) Countrywide CLICK HERE TO SEE LIST OF INDIAN COMPANIES CAPITAL RAISED

Performance of Indian ADRs/GDRs: Instanex Skindia Index Like any index measures the performance of any stock market, Instanex Skindia GDR index measures the performance of Indian ADR/GDR. The base of the Skindia GDR Index is April 15, 1994 with the index set consisting of 21 actively traded GDRs and ADRs. The Index, a market value weighted index (total number of GDRs issued multiplied by GDR price), is one of the most popular GDR Indices.

Global Depositary Receipt (GDR) Stock Prices This list gives you a Current Market Price (US $), P/E, Change (US $) and % Change. Company CMP(US$) PE Chg(US$) Chg(%) Dr. Reddy’s (A) 38.70 58.85 0.11 0.3 GAIL (G) 32.35 17.73 1.09 3.5 Grasim Industries (G) 44.22 13.03 2.13 5.0 ICICI Bank (A) 32.11 28.02 0.93 3.0 Infosys Tech (A) 49.15 28.98 0.25 0.5 Instanex Skindia DR Index 2,077.79 23.81 41.38 2.0 ITC (G) 5.48 35.58 [0.01] [0.1] L & T (G) 13.35 12.46 0.67 5.3 Mahindra & Mah. (G) 13.88 16.71 0.47 3.5 Ranbaxy Labs (G) 5.85 -23.71 0.29 5.2 Reliance (G) 27.55 18.73 1.10 4.2 Satyam Computers (A) 2.64 4.60 0.00 0.0 State Bank of India (G) 54.00 10.52 1.44 2.7 Sterlite Industries (A) 6.22 54.55 0.00 0.0 Tata Communications (A) 4.50 9.29 0.00 0.0 Tata Motors (A) 28.01 52.73 0.71 2.6