What is an American Depositary Receipt (ADR)?
American Depositary Receipts (ADRs) are negotiable US securities issued by a depositary bank (currently Deutsche Bank Trust Company Americas) that represent ownership of a company's publicly traded ordinary shares. ADRs enable American investors to acquire and trade foreign securities with reduced hassles regarding differing settlement timetables and other problems typically associated with investing directly in overseas equity markets. ADR's are created when a broker purchases a non-US company's shares on the home stock market of that company and delivers those shares to the depositary bank's local custodian bank, which then instructs the depositary bank to issue ADRs to American investors.
ADR holders are entitled to dividends payable on the underlying share and to have these paid in US dollars.
Buying and selling ADRs
If an American investor wishes to purchase shares in Telstra, they can either buy shares directly on the ASX through a broker in Australia, or get their own broker in the US to buy ADRs. The broker can purchase existing ADRs or can arrange for the depositary bank to issue new ADRs. The investors broker will contact a broker in the Australian market who will acquire shares in Telstra. These shares are then deposited with the depositary banks local custodian, which will then issue the corresponding number of ADRs to the US investor via their broker.
If an investor wants to sell their ADRs they can simply sell the ADRs as they would any other US security, or they can cancel their ADRs. When cancelling ADRs, the investor’s broker will instruct the depositary bank to cancel the ADRs and release the underlying shares to a broker in the Australian market. The Australian broker will then sell the shares on the ASX and proceeds will go to the US investor.
Who is Telstra Corporation Limited’s depositary for ADRs?
Deutsche Bank Trust Company Americas is the depositary bank for Telstra Corporation Limited’s ADR program. The depositary bank plays a key role in issuance as well as cancellation of ADRs. It also maintains the ADR holder register and distributes the dividends in US dollars.
Why do investors buy ADRs?
Some of the advantages of ADRs include the following:
- They offer US investors a convenient means of holding shares in non-US companies.
- They simplify the trading and settlement of foreign equities. ADRs trade and settle just like US securities, i.e. in US dollars with settlement in the US.
- They may offer lower trading and custody costs when compared with shares bought directly in the foreign market.
- Many US bank and pension fund portfolios may be prohibited by their charters from purchasing shares in non-US companies. ADRs, however, may be recognised as US securities.
- ADRs are denominated in US dollars. Dividend payments on the underlying shares are converted into US dollars by the depositary bank. These features minimise foreign exchange exposure for international and US investors.
What type of ADR facility does Telstra provide?
Telstra's ADRs are sponsored Level I Depositary Receipts, which trade over the counter (OTC) on the market operated by OTCMarkets and cannot be listed on a US stock exchange. The ADRs trade under the symbol TLSYY. The OTCMarkets is a decentralized market for securities that are not listed on a stock exchange. Trading on OTCMarkets occurs via a network of dealers who carry inventories of securities to facilitate the buy and sell orders of investors.
How many Telstra shares represent an Telstra ADR?
Under the Telstra ADR program, each ADR represents five Telstra shares.
How is the dividend calculated?
The US dollar rate paid to holders of ADRs is calculated by applying the exchange rate used to convert the foreign dividend payment (net of local withholding tax) to US dollars, and adjusting the result according to the ordinary share (ADR ratio).
Can ADR holders vote at the Telstra AGM?
Voting rights are not extended to ADR holders.
Who is the ADR depositary and how do I contact them?
Deutsche Bank Trust Company Americas is the current depositary bank for Telstra Corporation Limited’s ADR program. The depositary bank plays a key role in issuance as well as cancellation of ADRs. It also maintains the ADR holder register, and distributes the dividends in US dollars.
Contact details for ADR investors and brokers:
Deutsche Bank ADR broker services desks
New York: +1 212 250 9100
London: +44 207 547 6500
Contact details for registered ADR holders:
Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn NY 11219
Email: DB@amstock.com
Toll-free number: +1 866 706 0509
Direct Dial: +1 718 921 8124
For further information please refer to www.adr.db.com/drweb/index.html
