CASE
STUDY
Infosys Technologies successfully raised $70.38 million through the ADR
Submitted by:- Submitted to :-
Parul Dr. Megha M. Sharma
Abhishek Dhiman
Infosys Technologies
Infosys was allowed by the Governments of India to raise $75 million through the ADR route. The company which had
planned to go to the US market in 1998, put off the offering on account of poor market conditions.
It filed for SEC (Securities and Exchange Commission) registration on February 12, 1999. This was followed by its senior
management team including Mr. NR Narayana Murthy, then Chairman and CEO, Mr. Nandan Nilekani, Managing
Director and Mr. Mohandas Pai, CFO going on a roadshow to Asia, Europe and the US.
DETAILS OF THE ISSUE
Infosys Technology became the first Indian company on the 11th March to be listed on the NASDAQ, the favourite stock
exchange of technology companies. It successfully raised $70.38 million through the ADR route securing a 22% premium
on its offer price.
The company made a public offering of 1.8 million American Depository Shares representing 9 lakh equity shares. The
offer price was at $34 per ADS. Two ADS represented 1 share which effectively means that each Infosys share was
offered at $68 per share. This adds up to an issue size of $61.2 million. The Infosys scrip closed on the BSE at Rs 3201
which represents a 11 per cent premium to the ADR pricing of $68 per share.
GREENSHOE OPTION
Along with the 15% greenshoe option, the total amount Infosys is raising through ADR rises to 70.38 million.
This is because Infosys granted its underwriters an option purchase an additional 2.7 lakh ADS (1.35 lakh
equity shares) to cover the allotments (Greenshoe if any). The pricing of $68 per share fetches a premium of$
12.24 per share as against the offer price of $ 55.76 per share Infosys had filed with the Securities and
Exchange Commission.
Q1. What is ADR & GDR ?
Q. How Infosys is benefited with the use of ADR?
Q3. Discuss the Process of issuing ADR /GDR?
Q4.what is greenshoe option?
ADR (American Depository Receipt):
An American Depository Receipt (ADR) is a type of security that represents shares of a foreign company trading on a
U.S. stock exchange. ADRs are issued by a U.S. depository bank, which holds the underlying shares of the foreign
company on behalf of investors. ADRs make it easier for U.S. investors to invest in foreign companies without
having to directly purchase shares on foreign exchanges. They are traded and priced in U.S. dollars and provide
investors with the benefits of owning shares in a foreign company, such as dividends and capital appreciation,
without the complexities of international trading.
GDR (Global Depository Receipt):
A Global Depository Receipt (GDR) is similar to an ADR but represents shares of a foreign company trading on
exchanges outside the United States. GDRs are typically issued by international banks or financial institutions and
are listed and traded on multiple stock exchanges around the world. Like ADRs, GDRs enable investors to invest in
foreign companies and diversify their portfolios without the need to directly trade on foreign exchanges. GDRs are
denominated in a currency other than the domestic currency of the issuing company and are subject to the regulations
of the countries where they are listed and traded.
ANS:-2
Reaching new investors: ADRs allowed Infosys to tap into the vast pool of American investors. This
broadened their investor base significantly compared to just relying on the Indian stock market.
With more interested parties, Infosys could raise a larger sum – $70.38 million in this case.
Global recognition: Listing on the NASDAQ, a major exchange for tech companies, brought
Infosys significant international recognition. This enhanced their credibility and visibility among
investors worldwide, potentially leading to new business opportunities and partnerships.
Boosted valuation: The ADR offering secured a 22% premium on the original price, indicating
strong investor demand for Infosys stock. This translated to a higher valuation for the company, not
just on the NASDAQ but also on the Indian stock exchange (BSE).
Improved liquidity: ADRs made Infosys shares more easily tradable for US investors, increasing the
stock's overall liquidity. This can attract even more investors and potentially lead to a more stable
stock price.
Currency diversification: By raising capital in USD, Infosys gained some protection from
fluctuations in the Indian rupee. This provided some financial stability as the value of their holdings
wouldn't be solely tied to the rupee's performance.
ANS:-3.
ANS 4.The greenshoe option, also known as an "overallotment option," is a provision in an underwriting agreement
that allows the underwriters to purchase additional shares from the issuer at the offering price. This option provides
the underwriters with flexibility to stabilize the price of the security in the aftermarket by covering any excess
demand or oversubscription from investors during the initial public offering (IPO) or secondary offering.
In the case of Infosys, the company granted its underwriters a greenshoe option of 15% of the total number of
American Depository Shares (ADS) being offered. This means that the underwriters have the right, but not the
obligation, to purchase an additional 2.7 lakh ADS (equivalent to 1.35 lakh equity shares) from Infosys at the
offering price.
By exercising the greenshoe option, the total amount of capital raised by Infosys through its ADR offering increases
to $70.38 million. This is because the underwriters purchase additional shares from Infosys at the offering price,
thereby increasing the total number of shares available for sale to investors.
In this case, Infosys priced its ADR offering at $68 per share, which represents a premium of $12.24 per share
compared to the offer price of $55.76 per share that Infosys initially filed with the Securities and Exchange
Commission (SEC). The premium reflects the strong demand for Infosys' shares and the underwriters' confidence in
the company's prospects.
