Very soon ADRs of over 50 Indian companies will trade over the counter in the US. Bank of New York Mellon has in the past month made a slew of filings for level 1, unsponsored ADRs. So whether these companies like it or not, their securities are going to indirectly be available for trading in the US.
This is consequent to the government’s new Depository Receipts Scheme, 2015, which permits for unsponsored ADRs for the first time. An unsponsored ADR is created by a foreign depository bank without the participation or consent of the issuer/company.
Since the depository receipt scheme became effective December 15, 2014, Bank of New York Mellon has filed for over 50 such unsponsored ADRs including for TCS , Bajaj Finance , Apollo Tyres , United Breweries , Piramal Enterprises , Britannia , Just Dial , Unitech , MRF , Siemens , Aurobindo Pharma , NTPC , Power Grid , Ramco Cements , Voltas and Motherson Sumi , among others.
BNY Mellon has confirmed that “it has filed with the US Securities and Exchange Commission (SEC) to establish several unsponsored depositary receipt programmes from India. This decision was made following the recent notification by India’s ministry of finance of the new depositary receipts scheme, 2014, which became effective in mid-December. The new scheme permits, for the first time, unsponsored depositary receipts with respect to securities of Indian companies.”
But it is not clear when these ADRs will start trading in the OTC market and whether all these companies know about this development. To be clear their consent is not required. Bankers say the full process to establish an unsponsored ADR can take between 4-8 weeks and once a filing is done it can take as little as 3-4 days to get the ADRs traded.
When will these ADRs start trading, what impact will this have?
BNY wouldn’t give any more details. Another foreign bank said it was awaiting guidelines from Sebi and NSDL before making any filings.
It is hoped that Sebi will issue process guidelines and NSDL will work on headroom monitoring because the ADRs will be counted towards foreign investment limits.
Unsponsored ADRs are a good way to reach new foreign investors who want to trade only in their own markets. According to one estimate there are over 2000 actively traded DR programmes in the US OTC markets and investments are in excess of USD 70-80 billion. But companies will have to be wary of what this means for them, whether it exposes them to new SEC compliance requirement and even legal liabilities.