Volume 15, Number 3 Article by Manoj Kumar September, 2003
Depositary Receipts: Concept, Evolution and Recent Trends :
Depositary Receipts (DRs) have become a popular mode of financing corporate operations in the developed as well as the emerging markets. A negotiable instrument denominated in US dollars or Euros, DRs are issued by overseas depositary banks to international investors against the delivery of local currency shares of the issuer company to the domestic custodian bank. DR programmes are classified as American Depositary Receipts (ADRs) or Global Depositary Receipts (GDRs), the former being issued and/or listed only in the US markets while the latter are simultaneously issued and/or listed in more than one market, typically in the European and US markets. ADRs can be classified as Unsponsored ADRs, Sponsored ADRs, Private Placement DRs and Global DRs, depending upon where they may be listed and traded, their purpose, and their registration and accounting requirements.
DR programmes were originally developed to enable US investors to invest internationally in the late 1920s and ADRs came into existence in their present form in 1955. The 1990s saw a spurt in the number of DR programmes, particularly from emerging economies whose governments introduced financial liberalisation measures to meet the increased need of capital. Prior to 1990, firms from developed markets dominated the DR market but firms from emerging markets now constitute a major chunk of listed and traded DR programmes. India has the maximum number of DR programmes among emerging markets. From April 1992 to June 2001, 72 Indian firms issued 85 DR programmes which were listed on the foreign markets.
Initially Indian firms listed their DR programmes on European exchanges due to their mild securities regulations and easy listing norms, but in the course of the 1990s, with improved levels of financial transparency, they could meet the stringent requirements of the US markets and started listing on them. While ADR listing Indian firms tend to be young, innovative and operate in knowledge-based industries, GDR listing Indian firms operate mostly in the traditional sectors of the economy.
Reprint No 03304