GDR/ADRs: The divergence factor

Suresh Krishnamurthy

During the year 2000, the price movements of American Depository Shares and Global Depository Receipts listed in the overseas markets appear to have generally mirrored the movements in prices of underlying securities at the local markets.

On an average, while the price decline in the case of ADRs and GDRs was 24.8 per cent, the prices of underlying securities fell by around 25.7 per cent.

However, the average masks a number of cases in which divergent price trends were evident. On top of the list are GDRs such as Flex Industries, Ballarpur Industries, Garden Silk, EID Parry, SI Viscose and Ispat Industries. These GDRs out-performed the price movements in the underlying stocks. Bottom of the pile are GDRs/ADRs such as EIH, Bombay Dyeing, Finolex Cables, ITC and Gas Authority. In the case of these stocks, the ADRs/GDRs under-performed the price movement in the underlying stocks. These price movements have tended to realign the premium/discount at which these instruments trade overseas noticeably.

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Reckoned on the basis of ADR/GDR price movement alone, the GDRs of Flex Industries, Garden Silk, EID Parry, Ballarpur Industries and HFCL are on top of the list. ADRs/GDRs of Satyam Infoway, Pentamedia Graphics, EIH, L&T and M&M are at the bottom of the list.

Fresh offers: In the case of fresh offers of ADRs and GDRs made during the year, VSNL and Wipro are the only ones to stay afloat above their offer price. In the case of Wipro, the ADR price rise has come about even as the stock price in Indian markets has remained stagnant. Others have been on a sharp decline in line with the performance of the underlying stocks. SSI's GDR has shed 80 per cent over its offer price while Rediff.com has lost 77 per cent.

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The difference in the performance of VSNL and Wipro over the other fresh offers has a direct correlation with the timing of the offers. Wipro and VSNL made their offers at the fag end of the year when the prices in the local markets were already at more realistic levels and, as such, further declines in price compared to the offer price have been averted. The other ADR/GDR offering were made in the earlier part of the year. Their prices were linked to the domestic market price even at the time of the offer, with the price fixed in the region of 10 per cent above or below the domestic price. And, not surprisingly, just as their prices crashed at the domestic markets, the prices of the ADRs and GDRs also tumbled.