The overall literacy rate in India increased from 18.3% in 1951 to 65% in 2001, there female literacy rate accounted for 55%. The percentage of girls enrolled at the primary level of education is slightly more than that of those enrolled at the upper primary level.Hence a significant changes have been witnessed.
Illiteracy in the country has hampered the development in a big way. The effort of the government to educate the masses have gone in vain. It has been witnessed that the publishing rules from 36.11 crores in 1951 to 101 crores in 2001. The BIMARU states, comprising of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh home to 40% of India's illiterate population, contribute 40% of the population. The national total fertility rate of 2.1 was achieved in the year 2006 while the BIMARU states would achieve it between 2039 to 2100. Kerala is the only state, which has achieved the female literacy rate of about 90% and intent mortality rate of around 13% part thousand live births. It has population growth rate of 1.2% per year. Kerala achieved the national fertility rate in the year 1998.
Kerala has been able to achieve its targets, the cost it made effort to educate the population than restricting itself to the school and colleges. The meanest of child labor has significant been out of it is because the masses become aware of their rights and privileges. The state of Tamil Nadu introduced several schemes for the unorganized labor, which led the women empowerment. Apart from the health care, the state of Andhra Pradesh promoted education, social welfare and rural the development programs leading the literacy of empowerment of women. The status accorded to the woman in the states is that of beast burden.
The literacy rate among the women is considerably below. This has crippled the state machinaries, as none of the development schemes are able to penetrate the lower strategy of society. Social evil like child marriages and child labor, and high population growth the the complaint by High immorality they in these states are the results of illiteracy among women. It has been rightly said if you educate a man you educate a person, but if you educate the women you educate the entire family. It can be noticed that the states, where the female literacy is equally emphasized with the male literacy, have recorded low population growth and high standards of living to stop in the other states the conditions of woman are pathetic. Illiteracy has forced them to be dependent upon their errands and later on to be controlled by their husbands. Marriage at the young age, followed by a number of children leads to mental mortality and the children.
At a few places in such states, the females are aware of the real estate of the contraceptive methods available in the country. They are exploited when they were in the unorganized sector and at home like maidservants, attendants etc. being educated herself, the mother is unable to teach our children. Child labor among the illiterates classes has resulted mainly because the mother is unable to guide her children and protect them from the menace. These are some of the ill effects of the female illiteracy.
Hence our Govt.should adopt further necessary measures for female education.
Sunday, May 30, 2010
Performance Evaluation and its importance in PSU.
In modern competitive business world performance is the only output for everyone.
Performance appraisal of employees and executives and identifying their positive and negative attributes is very vital for the sustained growth of any industry/establishment/offices.Somehow , the very purpose of the performance appraisal has been lost in many Industrial Establishments , especially in Public Sector Undertakings where it has become a mere ritual - every employee gets awakened only after the 15th of March every year to write something that he knows in his performance appraisal - they have to submit the form duly filled in all aspects before the 31st of March.Earlier it was for the superiors to comment and evaluate the performance of their subordinate officers - later it has been made the responsibility of the individual officers themselves to identify their potentials and success they have met in meeting the targets set for them. Such a specialized appraisal form has become a ritual for the executives as there is no vital issues or questions to bring out or establish their potency in their areas.As a result, in many establishments, we can come across stereotyped answers for all the points .As a result , the appraiser is also not in a position to evaluate the executives on their real potential and they are also not allowed either to appreciate the hardworking executives or condemn the poor performers - the superiors have to establish with records for their appreciating or condemning the performance.As a result, there is no real assessment and the Performance Appraisal has become a statutory requirement.The Personnel Department also is not interested in making it serve the purpose for which it was introduced.
Performance appraisal of employees and executives and identifying their positive and negative attributes is very vital for the sustained growth of any industry/establishment/offices.Somehow , the very purpose of the performance appraisal has been lost in many Industrial Establishments , especially in Public Sector Undertakings where it has become a mere ritual - every employee gets awakened only after the 15th of March every year to write something that he knows in his performance appraisal - they have to submit the form duly filled in all aspects before the 31st of March.Earlier it was for the superiors to comment and evaluate the performance of their subordinate officers - later it has been made the responsibility of the individual officers themselves to identify their potentials and success they have met in meeting the targets set for them. Such a specialized appraisal form has become a ritual for the executives as there is no vital issues or questions to bring out or establish their potency in their areas.As a result, in many establishments, we can come across stereotyped answers for all the points .As a result , the appraiser is also not in a position to evaluate the executives on their real potential and they are also not allowed either to appreciate the hardworking executives or condemn the poor performers - the superiors have to establish with records for their appreciating or condemning the performance.As a result, there is no real assessment and the Performance Appraisal has become a statutory requirement.The Personnel Department also is not interested in making it serve the purpose for which it was introduced.
Thursday, May 27, 2010
What come under Taxable Service under Service tax Rules.
Taxable service under service tax rules
Stock-Broker
Telecommunication Service
General Insurance
Advertisement Agency
Courier
Consulting Engineer
Custom House Agent
Steamer Agent
Clearing & Forwarding Agent
Manpower Recruitment and Supply Agency
Air Travel Agent
Mandap Keeper
Tour operator
Rent-A-Cab scheme operator
Architect
Interior decorator
Management or Business consultant
Chartered Accountant
Cost Accountant
Company Secretary
Real Estate Agent
Security Agency
Credit Rating Agency
Market Research Agency
Underwriter
Scientific and Technical consultancy
Photography
Convention Centre
Online Information & Data Base Access or retrieval
Video-tape Production
Sound Recording
Broadcasting agency or organization
Insurance auxiliary services concerning general insurance business
Banking or Financial Services
Port
Authorized Service Station
Beauty Treatment
Cargo Handling
Cable Operator
Dry Cleaning
Event Management
Fashion Designer
Health Club & Fitness
Life insurance in relation to risk cover
Insurance auxiliary services concerning life insurance business
Rail Travel Agent
Storage and warehousing
Business Auxiliary Service
Commercial Training or Coaching Centre
Erection, Commissioning or Installation
Franchise
Internet Cafe
Management, maintenance or repair
Technical testing and analysis
Technical inspection and certification
Foreign Exchange Broker
Other Port
Airport Services
Transport of Goods by Aircraft
Business Exhibition
Transport of goods by road
Commercial or Industrial Construction Service
Intellectual Property
Opinion Poll
Outdoor Caterer
Programme Producer
Survey and Exploration of Mineral Oil and Gas
Pandal or shamiana
Travel Agent - Other
Forward Contract
Transport of goods other than water through pipeline or other conduit
Site formation and clearance, excavation and earthmoving and demolition and such other activities
Dredging Service
Survey and Map Making
Cleaning Activity
Club or Association
Packing Activity
Mailing List Compilation and Mailing
Construction of Complex
Registrar to an issue
Share Transfer Agent
ATM operations, maintenance or management
Recovery Agent
Sale of space or time for advertisement
Sponsorship
Transport of passenger embarking in India for international journey by air
Transport of goods by Rail
Support services of business or commerce
Auctioneers
Public Relation
Ship Management
Internet Telephony
Transport by Cruise Ship
Credit / Debit / Charge or Other payment Card
Mining
Renting of immovable property
Works contract
Development and Supply of Contents
Asset management service
Design Services
Information Technology Software Services
Management of Investment ULIP Service
Stock Exchange Service
Commodity Exchange Service
Processing and Clearing House Service
Supply of Tangible Goods Service
Cosmetic Surgery or Plastic Surgery Service
Transport of Coastal Goods; and Goods transported through Inland water Service
Legal Consultancy Service
Stock-Broker
Telecommunication Service
General Insurance
Advertisement Agency
Courier
Consulting Engineer
Custom House Agent
Steamer Agent
Clearing & Forwarding Agent
Manpower Recruitment and Supply Agency
Air Travel Agent
Mandap Keeper
Tour operator
Rent-A-Cab scheme operator
Architect
Interior decorator
Management or Business consultant
Chartered Accountant
Cost Accountant
Company Secretary
Real Estate Agent
Security Agency
Credit Rating Agency
Market Research Agency
Underwriter
Scientific and Technical consultancy
Photography
Convention Centre
Online Information & Data Base Access or retrieval
Video-tape Production
Sound Recording
Broadcasting agency or organization
Insurance auxiliary services concerning general insurance business
Banking or Financial Services
Port
Authorized Service Station
Beauty Treatment
Cargo Handling
Cable Operator
Dry Cleaning
Event Management
Fashion Designer
Health Club & Fitness
Life insurance in relation to risk cover
Insurance auxiliary services concerning life insurance business
Rail Travel Agent
Storage and warehousing
Business Auxiliary Service
Commercial Training or Coaching Centre
Erection, Commissioning or Installation
Franchise
Internet Cafe
Management, maintenance or repair
Technical testing and analysis
Technical inspection and certification
Foreign Exchange Broker
Other Port
Airport Services
Transport of Goods by Aircraft
Business Exhibition
Transport of goods by road
Commercial or Industrial Construction Service
Intellectual Property
Opinion Poll
Outdoor Caterer
Programme Producer
Survey and Exploration of Mineral Oil and Gas
Pandal or shamiana
Travel Agent - Other
Forward Contract
Transport of goods other than water through pipeline or other conduit
Site formation and clearance, excavation and earthmoving and demolition and such other activities
Dredging Service
Survey and Map Making
Cleaning Activity
Club or Association
Packing Activity
Mailing List Compilation and Mailing
Construction of Complex
Registrar to an issue
Share Transfer Agent
ATM operations, maintenance or management
Recovery Agent
Sale of space or time for advertisement
Sponsorship
Transport of passenger embarking in India for international journey by air
Transport of goods by Rail
Support services of business or commerce
Auctioneers
Public Relation
Ship Management
Internet Telephony
Transport by Cruise Ship
Credit / Debit / Charge or Other payment Card
Mining
Renting of immovable property
Works contract
Development and Supply of Contents
Asset management service
Design Services
Information Technology Software Services
Management of Investment ULIP Service
Stock Exchange Service
Commodity Exchange Service
Processing and Clearing House Service
Supply of Tangible Goods Service
Cosmetic Surgery or Plastic Surgery Service
Transport of Coastal Goods; and Goods transported through Inland water Service
Legal Consultancy Service
Know about URO Convertible Bond.
EURO-CONVERTIBLE BONDS:-
It is a debt instrument which gives the holder an option to convert the bond in to a predetermined number of equity shares of the company. The bond carry a fixed rate of interest. If the user company desires, the issue of such bonds may carry two options viz-
Call option i.e. the issuer company has the option of calling(buying) the bond for redemption before the date of maturity of the bonds. Where the issuer’s share price has appreciated substantially, i.e. far in excess of the redemption value of the bonds, the issuer company can exercise this option. This call option forces the investors to convert the bond in to equity.
Usually this arises when the share prices reach a stage near 130% to 150% of the conversion price.
Put option : A provision of put option give the holder of the bonds a right to put(sell) his bonds back to the issuer company at a predetermined price and date. In case of Euro convertible bonds, the payment of interest on and the redemption of the bonds will be made by the issuer company in US Dollars.
So a good manager should be updated about this bond.
It is a debt instrument which gives the holder an option to convert the bond in to a predetermined number of equity shares of the company. The bond carry a fixed rate of interest. If the user company desires, the issue of such bonds may carry two options viz-
Call option i.e. the issuer company has the option of calling(buying) the bond for redemption before the date of maturity of the bonds. Where the issuer’s share price has appreciated substantially, i.e. far in excess of the redemption value of the bonds, the issuer company can exercise this option. This call option forces the investors to convert the bond in to equity.
Usually this arises when the share prices reach a stage near 130% to 150% of the conversion price.
Put option : A provision of put option give the holder of the bonds a right to put(sell) his bonds back to the issuer company at a predetermined price and date. In case of Euro convertible bonds, the payment of interest on and the redemption of the bonds will be made by the issuer company in US Dollars.
So a good manager should be updated about this bond.
FOREIGN DIRECT INVESTMENT
Foreign direct investment is a major sources of fund channelised in the form of direct contribution to the equity capital of the company and is akin to domestic equity invested by the corporate shareholders. Prior to 1991 FDI was allowed only on a case to case basis with a ceiling of 40% on the total equity capital.
Under the new industrial policy foreign equity has been de-linked from technology transfer. Moreover FDI is being sought actively in a wide range of high priority /export oriented/critical infrastructure industries.
The major driving force for FDI is to tap foreign market where excess return can be earned as this provide incremental opportunities to MNC/International firm to earn higher return through lower cost and more sales and thus higher growth by expansion.
Govt. policy is to facilitate FDI and investment from non resident Indian including overseas corporate bodies that are predominantly own by them to complement and supplement domestic investment.
FDI is freely allowed in all sectors including the service sector except where the existing and notified sectoral policy does not permit beyond a ceiling.
The FDI for virtually all items/activities can be brought in through the automatic route, under power delegated to the RBI and for the remaining items/activities through Govt.approval accorded on the basis of the recommendation of the Foreign Investment Promotion Board(FIPB).
Therefore FDI is a attractive source of capital from international market through Equity investment, by issuing GDRs, ADRs FCCBs etc, it is also allowed to small scale sector up to 24%, Investment through preference share ,Investment by Non resident Indian and overseas corporate bodies, through foreign technology agreement etc. are also treated the Foreign direct Investment.
Under the new industrial policy foreign equity has been de-linked from technology transfer. Moreover FDI is being sought actively in a wide range of high priority /export oriented/critical infrastructure industries.
The major driving force for FDI is to tap foreign market where excess return can be earned as this provide incremental opportunities to MNC/International firm to earn higher return through lower cost and more sales and thus higher growth by expansion.
Govt. policy is to facilitate FDI and investment from non resident Indian including overseas corporate bodies that are predominantly own by them to complement and supplement domestic investment.
FDI is freely allowed in all sectors including the service sector except where the existing and notified sectoral policy does not permit beyond a ceiling.
The FDI for virtually all items/activities can be brought in through the automatic route, under power delegated to the RBI and for the remaining items/activities through Govt.approval accorded on the basis of the recommendation of the Foreign Investment Promotion Board(FIPB).
Therefore FDI is a attractive source of capital from international market through Equity investment, by issuing GDRs, ADRs FCCBs etc, it is also allowed to small scale sector up to 24%, Investment through preference share ,Investment by Non resident Indian and overseas corporate bodies, through foreign technology agreement etc. are also treated the Foreign direct Investment.
Friday, May 7, 2010
Foreign Currency Convertible Bond and its uses.
Indian companies have been able to tap the global market to raise foreign currency funds by issuing various types of financial instruments which are discussed shortly as follows:-
1. Foreign currency convertible bonds(FCCBs)
These are issued in accordance with the guideline dated 12th. Nov,1993 as amended from time to time and subscribed for by Non Resident in foreign currency and convertible in to ordinary/equity shares of the issuer company in any manner whether in whole or in part or on the basis of any equity related warrants attached to debt instruments.
Advantages of FCCBs:-
i. The convertible bond gives the investor the flexibility to convert the bond in to equity at a price or redeem the bond at the end of a specified period.
ii. Companies prefer bonds as it lead to delayed dilution of equity and allows company to avoid any current dilution in earning per share that a further issuance of equity would cause.
iii. It is easily marketable as investors enjoys option of conversion in to equity if resulting to capital appreciation. Further investor is assured of a minimum fixed interest earnings.
Disadvantages of FCCBs:-
i. Exchange risk is more in FCCBs as interest on bond would be payable in foreign currency. Thus companies with low debt equity ratios, large forex earnings potential only opted for FCCBs.
ii. FCCBs means creation of more debt and a forex outgo in terms of interest which is in foreign exchange.
iii. In case of convertible bond the interest rate is low (around 3 to 4%) but there is exchange risk on interest as well as principal if the bond are not converted in to equity.
The only major advantage would be that where the company has a high growth rate in earnings and the conversion takes place subsequently, the price at which share can be issued can be higher than the current market price.
Therefore it is very much important for a international business to know the details about FCCBs to get the advantage from International Market.
Aparna
1. Foreign currency convertible bonds(FCCBs)
These are issued in accordance with the guideline dated 12th. Nov,1993 as amended from time to time and subscribed for by Non Resident in foreign currency and convertible in to ordinary/equity shares of the issuer company in any manner whether in whole or in part or on the basis of any equity related warrants attached to debt instruments.
Advantages of FCCBs:-
i. The convertible bond gives the investor the flexibility to convert the bond in to equity at a price or redeem the bond at the end of a specified period.
ii. Companies prefer bonds as it lead to delayed dilution of equity and allows company to avoid any current dilution in earning per share that a further issuance of equity would cause.
iii. It is easily marketable as investors enjoys option of conversion in to equity if resulting to capital appreciation. Further investor is assured of a minimum fixed interest earnings.
Disadvantages of FCCBs:-
i. Exchange risk is more in FCCBs as interest on bond would be payable in foreign currency. Thus companies with low debt equity ratios, large forex earnings potential only opted for FCCBs.
ii. FCCBs means creation of more debt and a forex outgo in terms of interest which is in foreign exchange.
iii. In case of convertible bond the interest rate is low (around 3 to 4%) but there is exchange risk on interest as well as principal if the bond are not converted in to equity.
The only major advantage would be that where the company has a high growth rate in earnings and the conversion takes place subsequently, the price at which share can be issued can be higher than the current market price.
Therefore it is very much important for a international business to know the details about FCCBs to get the advantage from International Market.
Aparna
Know about Global Depository Receipt.
GLOBAL DEPOSITORY RECEIPTS (GDRs):-
A depository receipt is basically a negotiable certificate denominated in US Dollars, that represents a non US company’s publicly traded local currency(Indian Rupees) equity shares. DRs are created when the local currency shares of an Indian company are delivered to the depository’s local custodian bank, against which the depository bank(such as the bank of New York) issues depository receipts in US Dollar. These depository receipts may trade freely in the overseas market like any other dollar dominated security, either on a foreign stock exchange or in the over-the-counter market, or among a restricted group such as Qualified Institutional buyers(QIBs).
Indian issues have taken a form of GDRs to reflect the fact that they are marketed globally, rather than in a specific country or market. Rules 144A of the Security and Exchange Commission of USA permits companies from outside USA to offer their GDRs to certain Institutional buyers. They are known as Qualified Institutional Buyers(QIBs). There are Institution in USA which in the aggregate own and invest on a discretionary basis at least US $ 100 million in eligible securities.
It has been perceived that a GDR issue has been able to fetch higher prices from international investors(evev when Indian issues were being sold at a discount to the prevailing domestic share prices) than those that a domestic public issue would have been able to extract from Indian investors.
IMPACT OF GDR ON INDIAN CAPITAL MARKET:-
Since the inception of this scheme a remarkable changes in Indian capital market has been observed as follows:-
i. Indian stock market to some extent is shifting from Bombay to Luxemberg.
ii. There is arbitrage possibility in GDRs issue.
iii. Indian stock market is no longer independence from yhe rest of the world. This puts additional strain on the investors as they now need to keep updated with world wide economic events.
iv. Indian retail investors are completely sidelined. Because of this issue they can no longer expect to make easy money on heavily discounted rights/public issues.
MARKETS OF GDR’S:-
i. GDR’S are sold primarily to institutional investors.
ii. Demand is likely to be dominated by emerging market funds.
iii. Switching by foreign institutional investors from ordinary share in to GDRs is likely.
iv. Major demand in UK, USA, South East Asia and to some extent continental Europe.
PROFILE OF GDR INVESTORS:-
The following parameters have been observed in regard to GDR Investors:-
i. Dedicated convertible investors.
ii. Equity investors who wish to add holdings on reduced risk or who require income enhancement.
iii. Fixed income investors who wish to enhance returns.
iv. Retail investors, whose money normally managed by continental Europian banks on an aggregate basis provide a significant base for Euro convertible issues.
Hence to become an International traders one should know the details of the GDR and its dealing system.
Aparna
A depository receipt is basically a negotiable certificate denominated in US Dollars, that represents a non US company’s publicly traded local currency(Indian Rupees) equity shares. DRs are created when the local currency shares of an Indian company are delivered to the depository’s local custodian bank, against which the depository bank(such as the bank of New York) issues depository receipts in US Dollar. These depository receipts may trade freely in the overseas market like any other dollar dominated security, either on a foreign stock exchange or in the over-the-counter market, or among a restricted group such as Qualified Institutional buyers(QIBs).
Indian issues have taken a form of GDRs to reflect the fact that they are marketed globally, rather than in a specific country or market. Rules 144A of the Security and Exchange Commission of USA permits companies from outside USA to offer their GDRs to certain Institutional buyers. They are known as Qualified Institutional Buyers(QIBs). There are Institution in USA which in the aggregate own and invest on a discretionary basis at least US $ 100 million in eligible securities.
It has been perceived that a GDR issue has been able to fetch higher prices from international investors(evev when Indian issues were being sold at a discount to the prevailing domestic share prices) than those that a domestic public issue would have been able to extract from Indian investors.
IMPACT OF GDR ON INDIAN CAPITAL MARKET:-
Since the inception of this scheme a remarkable changes in Indian capital market has been observed as follows:-
i. Indian stock market to some extent is shifting from Bombay to Luxemberg.
ii. There is arbitrage possibility in GDRs issue.
iii. Indian stock market is no longer independence from yhe rest of the world. This puts additional strain on the investors as they now need to keep updated with world wide economic events.
iv. Indian retail investors are completely sidelined. Because of this issue they can no longer expect to make easy money on heavily discounted rights/public issues.
MARKETS OF GDR’S:-
i. GDR’S are sold primarily to institutional investors.
ii. Demand is likely to be dominated by emerging market funds.
iii. Switching by foreign institutional investors from ordinary share in to GDRs is likely.
iv. Major demand in UK, USA, South East Asia and to some extent continental Europe.
PROFILE OF GDR INVESTORS:-
The following parameters have been observed in regard to GDR Investors:-
i. Dedicated convertible investors.
ii. Equity investors who wish to add holdings on reduced risk or who require income enhancement.
iii. Fixed income investors who wish to enhance returns.
iv. Retail investors, whose money normally managed by continental Europian banks on an aggregate basis provide a significant base for Euro convertible issues.
Hence to become an International traders one should know the details of the GDR and its dealing system.
Aparna
American Depository Receipt and its uses.
MERICAN DEPOSITORY RECEIPTS (ADRs):-
Depository receipt issued by a company in the United State of America is known as American Depository Receipts which is govern by Securities and Exchange Commission of USA.
An ADRs is generally created by the deposit of the securities of an non united states company with a custodian bank in the country of incorporation of the issuing company.
The custodian bank informs the depository in the U.S. that the ADRs can be issued. ADRs are united states dollar denominated and are traded in the same way as are the securities of the U.S. companies.
Several variation on ADRs have developed over time to meet more specialized demands in different market. One such variation is the GDR which are identical in structure to an ADR, the only difference being that they can be traded in more than one currency and within as well as outside the United state.
There are three types of ADRs which are shortly described as below:-
i. Un-sponsored ADRs: These are issued without any formal agreement between the issuing company and the depository, although the issuing company must consent to the creation of the ADR facility. Under this, certain costs including those associated with disbursement of dividends are borne by the investor. They are exempted from most of reporting requirements of the securities and exchange commission.
ii. Sponsored ADRs : These are created by a single depository which is appointed by the issuing company under rules provided in a deposits agreement. There are two broad types of sponsored ADRs, those that are restricted with respect to the types of buyer which is allowed and are therefore privately placed and those that are unrestricted with respect to buyer and are publicly placed and traded.
Restricted ADRs are allowed to be placed only among selected investors and face restriction on their re-sale. As those are not issued to general public, they are exempted from reporting to the commission and are not even registered with them.
Unrestricted ADRs are issued to and traded by the general investing public in US capital market. There are three classes of UR ADR’s , each increasingly demanding in terms of reporting requirement to the commission as well as attractive in terms of degree of visibility provided.
Level 1 UR ADR,s are exempted from confirming their financial statistic to the US SE commission . Generally accepted accounting principles (GAAP) as well as from full reporting to the commission resulting a low cost.
Level II UR ADR,s are generally issued by companies that wish to be listed on one of the US National Exchanges. The issuing company must meet the full requirement of Securities and Exchange commission’s. They are therefore most costly for the issuing company but the public listing allows much higher visibility and makes the facility more attractive to potential investors.
Level III UR ADR’s are issued by companies which seek to raise capital in the US Security market by making a public offering of their securities. They must also make full securities and Exchange commission’s disclosure, confirm to US GAAP and meet relevant exchange requirements and provide highest degree of visibility of any ADR.
As per the estimates, the cost of preparing and filing US GAAP Accounts only ranges from $ 500000 to $ 1000000 with the ongoing cost of $150000 to $ 200000 per annum. Because of the additional work involved, legal fees are considerable higher for an US listing, which ranges between $ 250000 to $ 350000 for the underwriter, to be reimbursed by the issuer.
In addition the initial securities Exchange commission registration fees which are based on a percentage of the issue size as well as “blue sky” registration cost for traded in all state of US will have to be met. For increasing legal problem and cost involvement Indian company’s are shifting from ADR’s to GDR’s investment.
Hence one should know about the details of this instrument for taking the benefit from international market.
Aparna
Depository receipt issued by a company in the United State of America is known as American Depository Receipts which is govern by Securities and Exchange Commission of USA.
An ADRs is generally created by the deposit of the securities of an non united states company with a custodian bank in the country of incorporation of the issuing company.
The custodian bank informs the depository in the U.S. that the ADRs can be issued. ADRs are united states dollar denominated and are traded in the same way as are the securities of the U.S. companies.
Several variation on ADRs have developed over time to meet more specialized demands in different market. One such variation is the GDR which are identical in structure to an ADR, the only difference being that they can be traded in more than one currency and within as well as outside the United state.
There are three types of ADRs which are shortly described as below:-
i. Un-sponsored ADRs: These are issued without any formal agreement between the issuing company and the depository, although the issuing company must consent to the creation of the ADR facility. Under this, certain costs including those associated with disbursement of dividends are borne by the investor. They are exempted from most of reporting requirements of the securities and exchange commission.
ii. Sponsored ADRs : These are created by a single depository which is appointed by the issuing company under rules provided in a deposits agreement. There are two broad types of sponsored ADRs, those that are restricted with respect to the types of buyer which is allowed and are therefore privately placed and those that are unrestricted with respect to buyer and are publicly placed and traded.
Restricted ADRs are allowed to be placed only among selected investors and face restriction on their re-sale. As those are not issued to general public, they are exempted from reporting to the commission and are not even registered with them.
Unrestricted ADRs are issued to and traded by the general investing public in US capital market. There are three classes of UR ADR’s , each increasingly demanding in terms of reporting requirement to the commission as well as attractive in terms of degree of visibility provided.
Level 1 UR ADR,s are exempted from confirming their financial statistic to the US SE commission . Generally accepted accounting principles (GAAP) as well as from full reporting to the commission resulting a low cost.
Level II UR ADR,s are generally issued by companies that wish to be listed on one of the US National Exchanges. The issuing company must meet the full requirement of Securities and Exchange commission’s. They are therefore most costly for the issuing company but the public listing allows much higher visibility and makes the facility more attractive to potential investors.
Level III UR ADR’s are issued by companies which seek to raise capital in the US Security market by making a public offering of their securities. They must also make full securities and Exchange commission’s disclosure, confirm to US GAAP and meet relevant exchange requirements and provide highest degree of visibility of any ADR.
As per the estimates, the cost of preparing and filing US GAAP Accounts only ranges from $ 500000 to $ 1000000 with the ongoing cost of $150000 to $ 200000 per annum. Because of the additional work involved, legal fees are considerable higher for an US listing, which ranges between $ 250000 to $ 350000 for the underwriter, to be reimbursed by the issuer.
In addition the initial securities Exchange commission registration fees which are based on a percentage of the issue size as well as “blue sky” registration cost for traded in all state of US will have to be met. For increasing legal problem and cost involvement Indian company’s are shifting from ADR’s to GDR’s investment.
Hence one should know about the details of this instrument for taking the benefit from international market.
Aparna
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