ADRs are commonly used by Indian companies to tap into the US capital market. The process of issuing an ADR is simple. A non-US company (say a Indian company) deposits its shares with a US depository bank (similar to depositories such as NSDL and CDSL in India), which, in turn, issues ADRs to the company. So, ADRs are basically stock certificates listed on US exchanges such as the NYSE and the Nasdaq, offering access to US retail and institutional investors.
ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border and cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.
Each ADR is issued by a U.S. depository bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock .The share that is sold to as part of ADR is called ADS, remember that an ADR is not necessarly issues of new equity shares , but it is possible that exisiting indian share holders can submit their share holdings to be sold as an ADR , when the company intends to list their shares in US as an ADR .
For example Infosys has ADRs listed
Ratio of Infosys's equity shares to ADS : 1 equity share held/traded in India is equivalent to 1 ADS held/traded on NASDAQ
Do the Infosys ADSs have voting rights: Yes. In the event of a matter submitted to the holders of ordinary shares for a vote, the ADS holders on record as at a particular date will be allowed to instruct the depositary bank to exercise the vote in respect of the equity shares representing the ADS held by them.
Are the Infosys ADSs entitled to cash dividends:Yes, whenever dividends are paid to ordinary shareholders, cash dividends to ADS holders are declared in local currency and paid in dollars (based on the prevailing exchange rate) by the depositary bank, net of the depositary’s fees and expenses.
Source: Outlook Money,Infosys.com,Wiki
Image : FreeDigitalPhotos.net,Photographer: dream designs
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