Contents

1) ADR & GDR Introduction 2) Determining price 3) Risks Associated 4) Types of ADR 5) Comparison between ADR / GDR 6) Process of issuing ADR 7) Parties Involved 8) How ADR works 9) Why invest in foreign stocks? 10) How to invest in foreign stocks 11) Fungiblilty 12) Benefits of Fungibility 13) Regulatory requirements 14) Performance of Indian companies 15) Benefits and Drawbacks 16) Sectoral Caps for FDI 17) Why big companies considering delisting their ADR? 18) Conclusion 19) Bibliography

ADR Basics: What is an ADR?

An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number of shares of a foreign corporation traded on a U.S. stock exchange. An ADR will be used by a foreign corporation that wishes to have a portion of its equity traded in the U.S. market, but doesn't want to actually list its company's shares on a U.S. exchange. An American Depositary Receipt ("ADR") is a U.S. dollar denominated form of equity ownership in a non-U.S. company. It represents the foreign shares of the company held on deposit by a custodian bank in the company's home country and carries the corporate and economic rights of the foreign shares, subject to the terms specified on the ADR certificate. Introduced to the financial markets in 1927, an American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage. ADRs were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. For this reason, U.S. banks simply purchase a bulk lot of shares from the company, bundle the shares into groups, and reissues them on either the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) or the Nasdaq. In return, the foreign company must provide detailed financial information to the sponsor bank. The depositary bank sets the ratio of U.S. ADRs per home-country share. This ratio can be anything less than or greater than 1. This is done because the banks wish to price an ADR high enough to show substantial value, yet low enough to make it affordable for individual investors. Most investors try to avoid investing in penny stocks, and many would shy away from a company trading for 50 Russian roubles per share, which equates to US$1.50 per share. As a result, the majority of ADRs range between $10 and $100 per share. If, in the home country, the shares were worth considerably less, then each ADR would represent several real shares.

Global Depository Receipt (GDR) - certificate issued by international bank, which can be subject of worldwide circulation on capital markets. GDR's are emitted by banks, which purchase shares of foreign companies and deposit it on the accounts. Global Depository Receipt facilitates trade of shares, especially those from emerging markets. Prices of GDR's are often close to values of realted shares. Very similar to GDR's are ADR's. GDR's are also spelled as Global Depositary Receipt.

How to Determine Price of ADRs?

Let's use an example to give you a better idea of how the ADR process works. Suppose a recent boom in the popularity of Bloody Mary drinks has increased the prospects for the vodka industry. Russian Vodka Inc. wants to list shares on the NYSE to gain exposure to the U.S. market and to tap into the growing demand for vodka. Russian Vodka already trades on the Russian Stock Exchange at 127 Russian roubles, which, at this time, is equivalent to US$4.58. 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. However, if the U.S. price varies too far from the Russian price after taking the currency exchange rate and the ratio of ADRs to home country shares into account, an arbitrage opportunity may arise. ADRs tend to follow the general trend of the home country shares, but this is not always the case.

What are the Risks associated ?

There are several factors that determine the value of the ADR beyond the performance of the company. Analyzing these foreign companies involves further scrutiny than merely looking at the fundamentals. Here are some other risks that investors should consider: Political Risk - Ask yourself if you think the government in the home country of the ADR is stable? For example, you might be wary of Russian Vodka Inc. because of the characteristic instability of the Russian government. Exchange Rate Risk - Is the currency of the home country stable? Remember the ADR shares track the shares in the home country. If a country's currency is devalued, it will trickle down to your ADR. This can result in a big loss, even if the company had been performing well. Inflationary Risk- This is an extension of the exchange rate risk. Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Inflation can be a big blow to business because the currency of a country with high inflation becomes less and less valuable each day.

Types Of ADR
There generally are three different types of sponsored ADR programs Level I, Level II, and Level III, each with its own set of legal and regulatory requirements. Generally, the higher level ADRs indicate a higher level of issuer involvement with the ADR program and a greater amount of information made available by the issuer to the public. Both ADRs and the deposited securities must be registered under the Securities Act of 1933 (Securities Act) if there is a public offering of securities in ADR form. Deposited securities must be registered under the Securities Act of 1933 if a foreign issuer or its affiliate is selling securities to the public in the United States. Registration of deposited securities, however, would not be required when neither the issuer nor an affiliate is engaged in a public offering of the deposited securities. Level I ADRs are used when an issuer does not wish to, or is not allowed to, list its securities on a national securities exchange; Level I ADRs are traded in the pink

sheets. Level I ADRs must be registered with the SEC although most Level I issuers seek exemption from SEC reporting requirements. Level II ADRs can be listed and traded on national securities exchanges and must comply with the full registration and reporting requirements of the Securities Act and the Securities Exchange Act of 1934 (Exchange Act), which include initial registration on Form F-6, registration statements on Form 20-F, and annual reports and interim financial statements. Level II ADRs also require compliance with other selected securities laws, including Section 13 reporting of stock transactions. Because a Level II ADR does not involve a public offering in the United States of the shares underlying the ADRs, the underlying shares do not have to be registered under the Securities Act. Level III ADRs are the highest profile programs under which issuers float a public offering of depositary receipts in the United States and list the receipts on a national securities exchange. Level III receipts are subject to the same registration and reporting requirements as Level II receipts with the additional requirement that a Form F-1 registration statement for the securities underlying the ADRs also must be filed with the SEC. The Form F-1 includes a prospectus to inform potential investors about the company and the risks associated with the offering. Under SEC rules for Level II and III ADRs, the depositary bank must make copies of shareholder communications, proxies, and reports received from the issuer available for inspection by the ADR holders. In their initial registration, foreign issuers are required to disclose the terms of the deposit, including corporate governance rights of Level II and III ADR holders. For example, foreign issuers must disclose provisions, if any, with respect to the procedure for voting the deposited securities and the transmission of notices, reports, and proxy soliciting materials. For Level II and III ADRs, foreign issuers also are required to disclose in their SEC registration filings any provisions of foreign law or governing documents of the issuer that would limit the rights of nonresident or foreign owners of ADRs to hold or vote the securities or to receive dividends, interest, and other payments.

Process of issuing ADRs

Based upon availability and market conditions, an investor may acquire a ADR by either purchasing existing ADRs or purchasing shares in an issuer s home market and arranging for the creation of new ADRs .New ADRs are created once the underlying shares are deposited with the depositary s custodian in the issuer s home market. The depositary then issues ADRs, which represent the shares on deposit, to the investor or to the investor s broker. This is referred to as an issuance of ADRs.

ADR Issuance Process

Investor contacts broker and requests the purchase of a ADR issuer company s shares. If existing ADRs of that company are not available, the issuance process begins. To issue new ADRs, 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 issueADRs that represent the shares received. The depositary issues ADRs and delivers them in physical form or book entry form through DTC/ Euroclear/Clearstream (as applicable). The broker delivers ADRs to the investor or credits the investor s account.

Typically, for an issuance of Rule 144A ADRs and Reg S ADRs, the broker must submit certification papers to the depositary bank.

Graphical form of process

Parties involved with ADRs

.There are four main parties that come into play with ADRs:
1.

The issuing corporation is the first party. This is typically a large foreign-based corporation that is already listed on a major foreign exchange. Rather than dual list its shares on its home exchange and on a U.S. exchange, the issuer sells a bulk amount of its shares to a trusted U.S. party - a recognized bank.

2.

A U.S. bank is the second party in this process; by accepting the issuing company's shares and selling representative certificates to investors, the bank is said to sponsor the security, making it accessible to investors in the ADR's local market. Essentially, the bank accepts the shares from the foreign corporation, stores all of them in its vault, and prints a bunch of certificates that represent the shares. Those certificates are then issued to investors via an exchange.

3. A major U.S. exchange (i.e. NYSE or Nasdaq) then lists the bank's certificates for trading, allowing investors to buy and sell ADR units just as they would normal shares. Investors set market prices for the ADRs through the bidding process, pricing and freely trading the units back and forth in U.S. dollars. Because they are ADRs, investors avoid the problem of converting into foreign currency each time the units are bought and sold. They also don't have to deal with foreign trading rules or laws; however, the appropriate Securities and Exchange Commission (SEC) rules do apply. The SEC is the fourth major party involved in ADRs. While it plays no direct role in the issuance and trading of the ADR units, the SEC requires ADR issuers to file certain documents with the SEC before allowing the proposed ADR units to be issued and traded in the U.S. markets.

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Key Roles in Establishment of a ADR Program

Accountants >>Prepare financial statements in accordance with (or reconciled to) U.S.Generally Accepted Accounting Principles (U.S.GAAP) for Securities Act registered securities (Level II and Level III DR facilities) Custodian >>Receive underlying shares >>Confirm deposit of underlying shares Lawyers >>Advise on facility structure >>Negotiate Deposit Agreement >>Prepare appropriate registration statements or establish exemptions with SEC, as applicable >>Prepare listing agreements to list on U.S.exchanges (Level II and Level III DR facilities) >>Draft offering circular/prospectus Brokers >>Submit required forms to become a market maker in a security (for Level l programs),as needed >>Make securities available to investors Depository >>Advise on DR facility structure >>Appoint custodian >>Assist with DR registration requirements >>Coordinate with lawyers and investment bankers to ensure that all implementation steps are completed >>Prepare and issue DRs 11

>>Enlist market makers, if applicable >>Announce program establishment to brokers and traders Issuer >>Determine financial objectives >>Appoint depositary, lawyers, investment bank and accountants >>Determine program type >>Obtain approval from board of directors, shareholders and regulators, as needed >>Provide financial information to accountants >>Develop investor relations plan Investment Bankers >>Lead underwriting process >>Establish syndicate of participating banks >>Advise on capital structure >>Advise on type of DR structure >>Conduct due diligence >>Draft prospectus >>Obtain CUSIP number >>Obtain DTC,Euroclear and Clearstream eligibility,as needed >>Coordinate road show >>Organize book-building and line up market makers >>Price and launch securities

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How ADRs Work

The price of ADRs in the secondary market is, of course, determined by supply and demand, but the price will not deviate too much from the price of the underlying stock. If the ADR is trading at a higher price than the equivalent foreign shares of the company, then more shares of the company will be bought and held in the custodian bank, and more ADRs will be created. If the ADR trades below the equivalent price, then some ADRs will be canceled, and the custodian bank will release the corresponding shares of the company. This maintains parity between the price of the ADR and the foreign shares, after accounting for the currency exchange rate. When dividends are paid, the custodian bank receives it and withholds any foreign taxes, exchanges it for U.S. dollars, then sends it to the depositary bank, which then sends it to the investors. The depositary bank, being a U.S. bank, handles most of the interaction with the U.S. investors, such as rights offerings, stock splits, and stock dividends, but sponsored ADR investors may receive communications, such as financial statements, directly from the company. Note, however, that although ADR transactions are in U.S. currency, there still is a currency exchange risk. If the dollar falls, for instance, then the dividend will be reduced, and the market price of the ADR will drop. There is also political risk because the ADR still derives its value from the foreign stock, which could be adversely affected by unfavorable changes in politics or the law of the country.

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Why invest in foreign stocks?

Returns on Investment in Asian and Latin American stock markets have been far higher than in the United States over the last two years. The incredible rise in these stock markets, combined with the fall of the US Dollar, have caused the returns to be quite high indeed. Europe has also done well. An additional benefit of foreign investing is risk diversification for your domestic portfolio. In the chart below you can see that since January 1, 2005, The Latin American ADR Index (provided by the Bank of New York) is up over 73 percent. During that same period the S&P 500 is up only 9.5 pct. The ADR Index for Asia is up 30.0 percent, and even Europe is up 21.0 percent. These numbers clearly show that there are great opportunities in investing abroad. Of course, past performance does not guarantee future performance. Nevertheless, Investment opportunities abroad are considerable. The goal of StocksAbroad.com is to help you invest wisely in these countries.

How to invest in foreign stocks?

American Depositary Receipts, or ADRs: To gain access to capital from US investors many of the larger, and higher quality Asian corporations are listed and traded on US stock exchanges as ADRs (American Depositary Receipts). The Bank of New York lists 51 China ADRs, 135 India ADRs, and 160 Japan ADRs. You can buy and sell these ADRs just like US stocks. They can even be shorted. The most traded ADRs for Asia and Latin America are listed with Buy and Sell signals from our trading system

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Fungibility
Fungibility means division of depository receipts into local shares. Two-way Fungibility includes conversion of depository receipts into local shares and vice versa. After the issue of guidelines by RBI the market has witnessed a keen interest shown by the players due to arbitrage opportunities available in the domestic and overseas markets.

The fungibility is the conversion process. It implies that an investor can convert the ADRs/GDRs into local shares (i.e. converting of the depository receipts into the local shares). An arbitrage opportunity, in the form of premium quoted in the stock exchange, is created due to market segmentation.

Two-way Fungibility/Dual Fungibility Two-way fungibility implies that an investor can convert ADRs/GDRs into local shares and re-convert local shares into ADRs/GDRs up to a limit of the original ADRs/GDRs issue. Such type of process benefited many investors in the financial market. If, the investor converts the ADRs/ GDRs into the local shares by arbitrage opportunities, it is called the forward fungibility. After the conversion of ADRs/ GDRs into the local shares and if that local shares are re-converted to the ADRs/GDRs by arbitrage opportunities again, then it is called reverse

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Benefits of Fungibility
The key benefits that could accrue to investors (ADR/GDR holders and domestic investors) and companies from two-way fungibility are: improvement in liquidity and elimination of arbitrage. The conventional definition of liquidity is the ease with which an asset (in this case, ADRs/GDRs) can be bought or sold quickly with relatively small price changes. This essentially means that a liquid market for a security must have depth and breadth, and aid speedy price discovery. A liquid market is said to have depth if buy and sell orders exist both above and below the prices (at which a stock or ADR/GDR) is transacting. Similarly, the market is said to have breadth if buy and sell orders exist in good volume. In the one-way fungible regime, ADRs/GDRs suffered from price volatility and liquidity problems, basically for two reasons. The first reason was the low ADR issue size that accounted for low free-float in the US market and, thereby, low trading volumes in the security. Second, the GDR market had been largely dormant (with the exception of a few highprofile stocks) for the past couple of years. This affected the depth, breadth and pricediscovery process of GDRs in these markets. Two-way fungibility may at least revive some market interest in these stocks.

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Regulatory requirements in India for ADRs

In India :
Sponsored

ADR: An Indian company may sponsor an issue of ADR with an overseas

depository against shares held by its shareholders at a price to be determined by the Lead Manager. The Operative guidelines for the same have been issued vide A.P.(DIR Series) circular No.52 dated November 23, 2002. Two-way fungibility Scheme: Under the limited two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs. The operative guidelines for the same have been issued vide A.P.(DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs which are equal to or less than the number of shares emerging on surrender of ADRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long ADRs are quoted at discounts to the value of shares in domestic market, an investor will gain by converting the ADRs into underlying shares and selling them in the domestic market. In case of ADRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs. The scheme is operationalised through the Custodians of securities and stockbrokers under SEBI. Indian companies are permitted to raise foreign currency resources through issue of Foreign Currency Convertible Bonds (FCCBs) and/or issue of ordinary equity shares through American Depository Receipts (ADRs) to foreign investors i.e. institutional investors or individuals (including NRIs) residing abroad. Applications for necessary permission should be made to the Government of India, Ministry of Finance, Department of Economic Affairs, New Delhi. After obtaining the necessary approval from the Government, the Indian company should submit an application to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai - 400 17

001 enclosing a copy of the application made to the Government and the inprinciple/final approval granted by the Government, for necessary permission for issue/acquisition of shares to/by non-residents, remittance of issue expenses, opening of foreign currency accounts, etc. The ADRs issued by Indian companies to non-residents have free convertibility outside India. As regards transfer of shares (on conversion of ADRs into shares) in favour of residents, the non-resident holder of ADRs should approach the Overseas Depository bank with a request to the Domestic Custodian bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold by the non-resident or for being transferred in the books of the issuing company in the name of the nonresident. Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.185/98-RB dated 19th August 1998, permitting transfer of shares from nonresidents to residents, provided a. such shares were released by the Indian custodian of a ADR issue against surrender of ADRs by the non-resident concerned and

b. the sale is made on a stock exchange or the shares are offered for sale in terms of an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Authorized dealers may allow remittance of sale proceeds of such underlying shares on verification of the following documents:a. Release Order in original from the Domestic Custodian bank of the ADR issue. b. Sale note from a SEBI registered broker/merchant banker showing the number of shares transferred and the amount of sale proceeds. c. An undertaking/Accountant's certificate regarding payment of Income-tax Authorized dealers may also allow the non-resident transferor to keep the above mentioned shares in their safe custody till the sale of the shares is effected and to open a non-resident non-interest bearing account to collect the sale proceeds of the shares. A

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statement giving details, such as the name of the company whose shares have been sold, number of shares sold and the amount remitted should be submitted to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai 400 001 within a period of 7 days from the date of effecting the remittance. The above general permission will be applicable for transfer of shares underlying ADRs through stock exchange or under an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997. All other cases including transfer of shares, on conversion of FCCBs into shares in favour of residents, will require approval of Reserve Bank. The Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.193/99-RB dated 16th March 1999 permitting a. the non-resident holders of ADRs issued by a company registered in India to acquire the underlying shares against surrender of ADRs held by them when such shares are released by the Indian Custodian of the ADR issue

b. the company/depository concerned to enter in its register or books an address outside India of the non-resident holder in respect of the underlying shares issued against surrender of ADRs. In terms of Government guidelines, issue proceeds are required to be kept in foreign currency and can be utilized only for certain purposes such as for meeting the cost of expansion/diversification /acquisition/import of new plants and machinery, repayment of foreign currency loans, etc. as approved by the Government. Pending deployment of funds for approved purposes, the Indian company is allowed to keep the foreign currency funds abroad with foreign banks ( which are rated for short-term obligations as A1 + by Standard & Poor or P1 by Moody's ) or with branches of Indian banks abroad as deposits, or to invest them abroad in treasury bills and other monetary instruments with maturity not exceeding one year. Funds raised through ADRs, FCCBs and ECBs will also be allowed to be invested in rated certificates of deposit abroad. The issue proceeds can also be kept in foreign currency accounts with authorized dealers/public financial institutions in India authorized to deal in foreign exchange. It

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will accordingly be in order for authorized dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro Issue proceeds subject to the following conditions :a. The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted.

b. Authorized dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for on-lending in foreign currency to eligible clients. c. Authorized dealers may also invest surplus foreign currency out of such Euro Issue proceeds as per the aforesaid norms. d. Authorized dealers/public financial institutions accepting the foreign currency deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds. e. Authorized dealers will have to comply with the requirements of CRR/SLR as laid down by Reserve Bank from time to time. f. The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including upto a maximum of 15% of the proceeds earmarked for general corporate restructuring) are incurred by the Indian company Authorized dealers/public financial institutions accepting such deposits as also the Indian company, as the case may be, should comply with the conditions stipulated by Government of India in their approval letters for such issues.

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Benefits and Drawbacks Benefits:

For issuers, there are several reasons for launching and managing an ADR program: An ADR program can stimulate investor interest, enhance a company's visibility, broaden its shareholder base, and increase liquidity. By enabling a company to tap U.S. 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. ADR ratios can be adjusted to help ensure that an issuer's ADRs trade in a

comparable range with those of its peers in the U.S. market. Finally, through JPMorgan's no-load ADR purchase program, Global Invest Direct, issuers can make their ADRs easily and inexpensively available to U.S. investors, who are often brand-loyal consumers of their products.

The core benefit for investors - individuals and institutions alike - is that ADRs make it easy to purchase and hold a non-U.S. issuer's securities. Furthermore:

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ADRs trade easily and conveniently in U.S. dollars and settle through U.S.

clearinghouses. Publicly traded ADRs are registered with the U.S. Securities and Exchange

Commission (SEC). For companies that typically pay dividends, ADRs mean those dividends are paid promptly and in U.S. dollars. Many institutional investors are restricted from investing in securities that do not trade on a U.S. exchange, so listed ADRs represent a way to add international exposure to a portfolio. Through JPMorgan's no-load ADR purchase program, Global Invest Direct,

investors can purchase ADRs inexpensively and without the use of a broker.

Drawbacks :
While ADRs have many benefits for U.S.-based investors,there are a number of potential disadvantages to consider: Additional Costs The cross-border creation of ADRs may involve narrowly higher costs than ORDs.These costs may be passed on to investors.In addition,banks issuing ADRs that are not listed on the NYSE may keep a portion of dividends as payment for services.While this reduces the amount of income earned by individual investors,this cost must be weighed against the convenience the bank provides in converting the dividend from a foreign currency to U.S.dollars. According to JPMorgan,over the long term,foreign custody fees for holding ORDs may exceed ADR custody costs in the United States. Limited Universe ADRs are not always available for certain foreign companies.Restricting holdings to ADRs can reduce your investment oppourtunities,especially among smaller cap

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companies.Many companies that have ADRs are larger,well-known companies such as Sony,Telefonos de Mexico,and Novartis. Lack of Disclosure for OTC-traded ADRs Some non-U.S.companies choose not to list their ADRs on Nasdaq or U.S.stock exchanges.These OTC-traded securities are not subject to the same reporting requirements as listed stocks.Instead,their financial reporting follows home market reporting and disclosure.As a result,fundamental information for OTC-traded ADRs may be harder to obtain than for other ADRs,requiring special efforts in evaluating investment merit. Currency Risks Some investors mistakenly believe ADRs are immune from currency concerns.This is not true.Fluctuations in international currencies can have an effect on the value of ADRs.For example,the price of a Sony ADR trading on the NYSE will closely track the price of Sony shares traded in Tokyo,after adjusting for changes in the dollar-yen relationship.
.

Sectoral Caps
As per the Foreign Investment guidelines issued by the Government of India, Ministry of Industry, foreign investment (equity/preference shares) upto certain specified limits would be permitted by Reserve Bank under Automatic Route as under: In relaxation of earlier guidelines, GDR end - uses will include : # Foreign investment (equity/preference) upto 50% in respect of Mining activities; # Foreign investment (equity/preference) upto 51% in (i) industries/items included in part 'B' of Annexure III to Ministry of Industry's Press Note No.14 (1997 series) dated 8th October 1997** and (ii) a trading company primarily engaged in export activity; in software development

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# Foreign investment (equity/preference) upto 74% in industries/items included in part 'C' of Annexure III to Ministry of Industry's Press Note No.14 (1997 series) dated 8th October 1997** # Foreign Investment upto 100% in industries/items included in Part 'D' of Annexure III, to Ministry of Industry's Press Note No.14 (1997 Series)** as amended from time to time provided the foreign investment in a project does not exceed Rs.1500 crores.

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Why are big foreign companies considering delisting their American depositary receipts?
American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR is a financial product issued by U.S. depositary banks and traded on U.S.stock exchanges such as the NYSE and the Nasdaq. Since each ADR represents one or more shares of a foreign stock, or a fraction of a share, when you purchase an ADR, you are essentially purchasing shares of a foreign company. The primary advantage of trading in ADRs is that they reduce the hassle of purchasing stocks in foreign countries with uncommon types of currency. However, although ADRs are traded in U.S. dollars on local exchanges, they are not protected from the political and exchange-rate risk that is prevalent in the home country of the company purchased. Initially, foreign companies used ADRs to increase their exposure within the North American market. More recently, some companies have decided to delist their ADRs from U.S. exchanges for a variety of reasons. Some have delisted their ADRs based on corporate decisions that have reduced the amount of business done within the U.S. Decisions such as these can be made based on changing economic conditions within the U.S. and foreign markets. For other foreign companies, the ADRs represented an extremely small portion of the equity that they had issued and these ADRs had very low trading volumes. These firms also found that U.S. residents owned primarily ordinary shares within the company, rather than ADRs. When a firm decides to delist an ADR program, investors holding the ADRs are always reimbursed for what they own. Usually, investors are allowed to exchange their ADRs for ordinary shares of the company. Investors are also given the opportunity to tender their ADRs for cash, less fees and expenses.

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Conclusion
With globalization dissolving borders, it only makes sense that we have the ability to invest in foreign entities. Many nations who are striving to become industrialized are undervalued compared to the levels they will eventually reach. Many people, therefore, consider ADRs & GDRs as an undiscovered gem in the financial
markets. Diversification does not stop at just investing in different types of stocks or bonds. By investing in different countries, you gain the potential to capitalize on emerging economies, which hopefully leads to more green in your pocket.

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References:
www.thismatter.com www.adr.com www.google.com www.altavista.com www.nasdaq.com www.stocksabroad.com www.nseindia.com www.ask.com www.rbi.org.in www.nyse.com

www.investopedia.com www.adrbny.com

Multinational Business Finance By: David k Eiteman Capital market and financial services By Prof. Anil Agashe

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