Why are big foreign companies considering delisting their American depositary receipts?

A:

American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR is a financial product issued by U.S. depositary banks and traded on U.S.stock exchanges such as the NYSE and the Nasdaq. Since each ADR represents one or more shares of a foreign stock, or a fraction of a share, when you purchase an ADR, you are essentially purchasing shares of a foreign company.

The primary advantage of trading in ADRs is that they reduce the hassle of purchasing stocks in foreign countries with uncommon types of currency. However, although ADRs are traded in U.S. dollars on local exchanges, they are not protected from the political and exchange-rate risk that is prevalent in the home country of the company purchased.

Initially, foreign companies used ADRs to increase their exposure within the North American market. More recently, some companies have decided to delist their ADRs from <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /?>U.S. exchanges for a variety of reasons. Some have delisted their ADRs based on corporate decisions that have reduced the amount of business done within the U.S. Decisions such as these can be made based on changing economic conditions within the U.S. and foreign markets. For other foreign companies, the ADRs represented an extremely small portion of the equity that they had issued and these ADRs had very low trading volumes. These firms also found that U.S. residents owned primarily ordinary shares within the company, rather than ADRs.

When a firm decides to delist an ADR program, investors holding the ADRs are always reimbursed for what they own. Usually, investors are allowed to exchange their ADRs for ordinary shares of the company. Investors are also given the opportunity to tender their ADRs for cash, less fees and expenses.

To learn more, see American Depositary Receipt Basics, What Are Depositary Receipts? and The Dirt On Delisting.

RELATED FAQS

  1. How many nations must a company trade in to be considered a multinational corporation?

    Learn about the conditions a company has to meet to be considered multinational, and find out when investing in multinational ...
  2. What makes China's special administrative regions (SAR) so special?

    Learn why China's special administrative regions are special and why they have many of the same characteristics of independent ...
  3. How risky is it to invest in metals and mining companies with operations in politically ...

    Learn about a number of risk factors such as tax policies and changes in fees that can affect a mining company operating ...
  4. How does the price of oil affect Russia's economy?

    Discover how the changes in the price of oil affect Russia's economy. As a net exporter of oil, Russia depends on robust ...
RELATED TERMS
  1. Welfare Capitalism

    Definition of welfare capitalism.
  2. Foreign remittance

  3. Sponsored ADR

    An American depositary receipt (ADR) issued by a bank on behalf ...
  4. Depositary Receipt

    A negotiable financial instrument issued by a bank to represent ...
  5. Corporate Inversion

    Re-incorporating a company overseas in order to reduce the tax ...
  6. Foreign Portfolio Investment - FPI

    Securities and other financial assets passively held by foreign ...

You May Also Like

Related Articles
  1. Stock Analysis

    Can Modi Mania Continue?

  2. Economics

    What Is Happening To The BRIC Economies?

  3. Markets

    Why Are Investors Turning Down The Volume?

  4. Economics

    Gary Gordon Positions Your Portfolio ...

  5. Stock Analysis

    Where Are Foreing Markets Compared To ...

Trading Center