Tata Motors to delist American depository receipts from NYSE from January 2023

Tags: Economy/Finance

India’s leading motor company TATA motors has announced that it will delist its American Depository Receipts (ADR) from the world’s largest stock exchange, New York Stock Exchange (NYSE) in the United States of America from January 2023.

Tata motors issued ADR in 2004 with the objective to raise foreign shareholders participation in the company and raise foreign capital. Tata Motors said that at present the company has a considerable foreign investment in the company and interest in its ADR is declining. Hence the company has decided to delist the ADR.

Infosys was the first Indian company to issue an ADR in 1999. The Infosys ADR was listed at the American stock exchange NASDAQ.

What is an American Depository Receipts (ADR)?

It is a derivative instrument issued by an American depository to the American investor and listed on an American stock exchange. It is issued against the equity shares of a non-American company. The ADR are traded like a share and the ADR holder has all the rights which are enjoyed by the equity shareholder of the company, except voting rights.

How does it works?

For example Tata Motors wants to issue ADR so as to raise foreign capital and increase foreign participation in the company.

Tata Motors for example will either create new 10,000 shares or use the existing shares of the company. It approaches an American depository, in this case Citibank and asks it to deposit its 10000 shares with it. 

The Citibank will accept the Tata motors shares and will issue a recipient on behalf of the Tata motors deposited shares. Suppose for one share one receipt is issued.  Thus a total of 10,000 receipts will be issued by Citibank. The receipts will be sold to the American investor for say $10 per receipts. 

Thus $10, 00, 00 worth of receipts will be sold and the depository after deducting its commission will give the rest of the amount to Infosys. 

Here the Tata motors shares remain deposited with the American depository and the American investors hold the receipts issued by the depository. That is why receipts are a derivative instrument.

The Receipts will be listed on an American stock exchange and traded like ordinary shares.  

The receipts issued by an American depository is known as American Depository Receipts.  

The holder of the ADR will get all the benefits enjoyed by the Tata motors Indian shareholder except voting rights. Voting rights are not given to the ADR holder as still India doesn't have full Capital account convertibility.

New York Stock Exchange (NYSE)

It is the world's largest stock exchange located in New York City , United States of America .

It is also famous as Wall Street .  Wall Street is the name of the place where the building which hosts the NYSE is located.

The Index of the NYSE is Dow Jones Industrial Average or Dow Jones . It was the first stock market index in the world . The BSE index Sensex is based on the Dow Jones model.

ICICI was the first Indian company to be listed on NYSE in 1999.

NYSE was set up on 17 May 1792.