A look at American Depository Reports
- The history of American Depository Reports (ADR)
- Determining price of ADR
- Risks associated in ADR
- Types of ADR
- Process of issuing ADR
- ADR market
- Guidelines for ADR
- Reasons for investing in foreign stocks
- How to invest in foreign stocks
- Benefits and drawbacks of ADR
- Why big companies considering delisting their ADR?
Since 1980, the value of U.S.investment in non- U.S.equities has grown approximately 100-fold to $1.9 trillion .The first ADRs were introduced in the United States in 1927 when JPMorgan issued receipts for the British retailer Selfridges. Prior to the 1980s,ADRs primarily were used by foreign companies to create stock-purchase plans for their U.S.-based employees. However, since the mid-1980s, increasing numbers of non-U.S. companies have issued ADRs to raise capital and/or to increase their U.S. exposure. Today, more than 2,100 companies from approximately 80 countries have issued ADRs that trade in the United States. Of those 2,100 ADRs, more than 500 are listed on U.S. exchanges. In some cases, ADRs may constitute 5 -15% of a company 's total shareholder base. ADR trading volume has grown significantly since 1992.The value of ADR trading peaked in 2000 at $1.1 trillion. Trading volume, measured in billions of shares has climbed every year since 1992, reaching 34.7 billion in 2003.
Globalization is the dissolution of barriers to trade and the tendency of the world's businesses to integrate customs and values. Globalization is making it increasingly easy to travel, correspond and even invest in other countries.
Investing money in your own country's stock market is relatively simple. You call your broker or login to your online account and place a buy or sell order. Investing in a company that is listed on a foreign exchange is much more difficult. Would you even know where to start? Does your broker provide services in other countries? For example, imagine the commission and foreign exchange costs on an investment in Russia or Indonesia.
[...] equity markets, the ADR offers a new avenue for raising capital, often at highly competitive costs. For companies with a desire to build a stronger presence in the United States, an ADR program can help finance U.S. initiatives or facilitate U.S. acquisitions. ADRs can provide enhanced communications with shareholders in the United States. ADRs provide an easy way for U.S. employees of non-U.S. companies to invest in their companies' employee stock purchase plans. Features such as dividend reinvestment and direct purchase programs can help ensure a continual stream of investment into an issuer's program. [...]
[...] With a view to further liberalizing the operational guidelines and in particular track record scrutiny of the ADR proposals and approval mechanism various options were considered by the Government. Given the fact that investments through ADR being risk capital, it has been decided that the track record scrutiny process for ADR issues and the two stage approval by the Ministry of Finance, Department of Economic Affairs could be dispensed with.The following guidelines for ADR issues, in continuation of the Notification of November 1993 (amended in November, 1999) shall come into effect from the date of issue of these guidelines. [...]
[...] Russian Vodka already trades on the Russian Stock Exchange at 127 Russian roubles, which, at this time, is equivalent to US$ Let's say that a U.S. bank purchases 30 million shares from Russian Vodka Inc. and issues them in the U.S. at a ratio of 10:1. This means each ADR share you purchase is worth 10 shares on the Russian Stock Exchange. A quick calculation tells us that the new ADR should have an issue price of around US$ 45.80 each (10 times $ 4.58 ) Once an ADR is priced and sold on the market, its price is determined by supply and demand, just like an ordinary stock. [...]