An analysis of ADR market and opportunities for Indian IT companies

Abstract

ADRs, as mentioned earlier, are used to issue equity backed securities of companies, based outside of US, in US capital markets. ADRs are quoted and traded in U.S. dollars, and are settled according to procedures governing the U.S. market. ADRs enable investors to invest in non-U.S. securities without concern for often complex and expensive cross-border transactions, and offer substantially the same economic rights enjoyed by domestic shareholders of the non-U.S. issuer. To the extent dividends are paid on the underlying securities, ADRs provide for such dividends to be converted and paid out in U.S. dollars. ADR share prices carry foreign currency risk depending on the movement of the U.S. dollar against the home market currency. The first ADR was created in 1927 to accommodate U.S. investment in U.K. equities. Today, the ADR is an instrument used by approximately 2,100 non-U.S. issuers from approximately 80 countries to enable their shares to be traded in the U.S. equity markets. Of the 2,100 ADRs, approximately 500 ADRs are listed on U.S. exchanges. ADRs offer substantial benefits to non-U.S. companies, from broadening the shareholder base to increasing visibility in the U.S. markets. ADRs can be used to raise equity capitalin the U.S., and as currency in mergers and acquisitions. And for an issuer's U.S. employees, ADRs can be used for option, incentive and purchase plans.