WHAT IS AN ADR (AMERICAN DEPOSITARY RECEIPT)?

For those who want to invest in international markets, an interesting way to do it is through Argentine ADRs.
The acronym ADR stands for American Depositary Receipt and refers to a physical title that acts as support for the deposit in a US bank of shares of companies whose companies were incorporated abroad.

ADRs allow you to invest in shares of the company on the US Stock Market as if they were shares originated in said stock market. ADRs are issued by North American financial institutions and are listed on their markets.

An ADR is a certificate that allows investors to trade shares of listed companies, of which their companies are incorporated outside the United States; so they are foreign stocks that are traded on the US stock market.

So what is an ADR?

An ADR (American Depositary Receipt? Is a negotiable certificate issued by a US bank that represents one or more shares listed on any of the North American stock exchanges, and symbolizes the portion of the shares of other countries that circulate or are traded in those markets.

There are different types of ADR but basically it is the mechanism that allows a company to issue shares directly on the North American Stock Exchange.

For example, a foreign company can be listed directly on Wall Street, as Mercado Libre does, but they also tend to access the world’s most important stock market through ADRs.

Such is the case of Tenaris, Grupo Financiero Galicia, IRSA or YPF, among many others, that list these instruments (ADRs), «although they are not directly listed on the stock exchanges» as shares, despite the fact that they are still listed.

In summary, the majority of national firms that are listed on Wall Street do so under this ADR format, and only a few are those that operate directly as shares.

The New York market is more liquid and has more volume, which is why it becomes a reference for paper, since it can operate at an amount many times higher than in Buenos Aires, which is why ADR acquires more relevance than the stock traded on the local market.

Some characteristics of ADRs

ADRs are equivalent to a certain number of shares in a company and are traded like any share in a North American market, although it has some peculiarities to take into account.
In order to initiate an ADR, the financial institution is generally a North American bank, it acquires a certain number of shares of the company, and then reissues them in a stock market. Then they must decide how many shares it means to acquire a single ADR. Certain ADRs are equivalent to several shares of a certain company.
ADRs are a negotiable financial instrument issued by a US bank that allows foreign companies to be listed on the New York Stock Exchange.
The shares remain in custody in an American bank issuing ADRs.

ADRs are the way for large foreign firms to reach Wall Street

What is the origin of ADRs?

ADRs were created in 1920 thanks to the growing interest of American investors, thus international companies began to be listed on the United States market. Since 1980 the number of ADR placements has grown. In 1990 the first ADR of a Latin American company appeared in the North American market and it was the shares of the Chilean Telephone Company (CTC).

List of ADR companies in Argentina

YPF – Mercado Libre – Despegar.com – BBVA Banco Francés – Grupo Supervielle – Telecom Argentina – Grupo Financiero Galicia – Central Puerto – Cresud SACIF – Pampa Energía – Banco Macro – Loma Negra – Transportadora de Gas del Sur – Bioceres Crop – Edenor – IRSA – IRSA Properties

Why the great interest in ADRs?

Companies use it to raise capital.
Dividends and profits generated by share price movements are obtained in dollars.
ADRs can be acquired by investors residing outside the United States.
It allows investors to use an ADR to speculate on certain securities in their respective markets.