What Is Sponsored ADR?

A sponsored ADR is an American depositary receipt (ADR) that a bank issues on behalf of a foreign company whose equity serves as the 澳洲幸运5官方开奖结果体彩网:underlying asset. A sponsored ADR creates a legal relationship between the ADR and the foreign company, which absorbs the cost of issuing the security. 澳洲幸运5官方开奖结果体彩网:Unsponsored ADRs can only trade on the over-the-counter market (OTC) while sponsored A♉DRs can be listed on major exchanges. ADRs are a simple way for American investors to add international c🐼ompanies' stock to their portfolio.

Understanding Sponsored ADRs

Foreign companies use ADRs to tap into foreign 澳洲幸运5官方开奖结果体彩网:capital markets. Investors who may typically focus on domestically listed companies are given the opportunity to obtain returns from higher growth 澳洲幸运5官方开奖结果体彩网:emerging markets, such as those in China or India. Despite being listed in America, a company using a sponsored ADR will still haꦺve its revenue and prꦅofit denominated in its home currency.

There are three levels of sponsored depositary receipts. A Level I sponsored ADR can only be traded 澳洲幸运5官方开奖结果体彩网:over-the-counter (OTC) and cannot be listed on a U.S. exchange. However, this type of ADR is easier to set up for foreign companies, does not require the same disclosures, and does not require the company to abide by 澳洲幸运5官方开奖结果体彩网:generally accepted a൲ccounting principles (GAAP). Thus, there is less information available for these securities.

Level II sponsored ADRs can be listed on an exchange and are thus visible to a wider market. Level II ADRs, however, require the company to comply with the SEC. Le🍸vel III sponsored ADRs permit the company to issue shares to raise capital but require the highest level of compli🔯ance and disclosure.

Spons🦹ored ADRs and Additional Means of Foreign Investing

Foreign investing can bring significant rewards but often at a higher risk. Typically, investors gain exposure to foreign stocks in their portfolio through purchases of foreign-based equities. However, another option to gain exposure is via 澳洲幸运5官方开奖结果体彩网:foreign direct investing (FDI). This occurs when a company expands its operations into new and emerging economies. FDI can take the form of oꦓpening new franchises or regional headquarters in a developing country and relying on a mix of local and expatriate employees.

Companies may also open a 澳洲幸运5官方开奖结果体彩网:subsidiary or 澳洲幸运5官方开奖结果体彩网:associate company. This can iไnvolve acquiring a controlling interest in an existing foreign company or merging or creating a joint venture with a foreign company.

In general, companies engage in FDI in more 澳洲幸运5官方开奖结果体彩网:open economies that offer a skilled workforce and strong prospects for growth, fewer regulations, and less political instability. In 2018, the Brookings Institution published “Competing in Africa: China, the European Union, and the United States,” which stated that the United States is the largest investor in the African continent with a total FDI of $54 billion.