Recently stocks like ICICI, Infosys, Satyam were rising due to the specific reason called “Sponsored ADS”.
What is that Sponsored ADS? Who is sponsoring that?
Curious to know what’s happening, just read our two part tip of the day mails ...
Before going into “Sponsored” ADS, we will look into what is “ADS”.
What is American Depository Share (ADS)?
A share issued under deposit agreement that represents an underlying security in the issuer's home country. - Investopedia definition
Indian companies sell their equity in the US and Europe. As on January 22, there were 12 Indian companies listed in the US and 53 in Europe. When a foreign company makes public issues in the US, they issue dollar-denominated ADS, where each ADS equals a certain number of its domestic shares. For example, one Satyam ADS is equivalent to two shares. In European exchanges, the underlying instrument is termed GDR (global depository receipt).
Why a company goes for ADS?
For Indian companies, an ADS issue is not just a money-raising exercise. Cash-rich companies like Infosys and Wipro don’t need the thousand-odd crore they have raised through ADS issues. It’s more to do with building a business. Indian IT companies, for instance, work mostly in the US. Being listed there gives them global visibility and enables them to filter into the consciousness of corporate America, which leads to more business calls.
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