GAIL weighs GDR to ADR conversion

GAIL Ltd is considering the option of converting its global depository receipts (GDRs) to American depositary receipts (ADRs). The conversion is expected to broaden the shareholder base of the gas major.

More importantly, the ADR would lay the foundation stone for a subsequent mopping up of funds from the US market. ICICI Securities, which acted as a lead manager to the GAIL public issue, has prepared a report on the switch.

Proshanto Banerjee, chairman and managing director of GAIL, said the company was evaluating the report. "We are looking at the benefits of the ADR option," he told Business Standard.

The conversion would also lead to change in the accounting practice of this navaratna PSU to US GAAP standard. Banerjee said GAIL would appoint international accounting firm for the reconciliation of accounts with US GAAP in due course.

The development gains in significance as GAIL has lined up huge capital investment on various sectors, including the national gas grid, petrochemicals, exploration and production and city gas distribution among others. It will also be bidding got the Enron assets in India as part of a consortium.

"GAIL may have to tap the market again to finance its ambitious projects in future. Companies these days prefer the ADR route given that it is more widely participated in the global market," an expert said.

The company had issued 16 per cent of its equity as GDRs in 1999 by way of disinvestment of the government's equity. The GDR totaling 22.5 million with 135 million underlying shares, had been listed at the London Stock Exchange (LSE). With two way fungibility being permitted, GDR holding declined to only 8.85 per cent as on December 31, 2003.

Sources said the company was considering whether to continue a part of the stake as GDR or fully convert them into ADRs.

The ADR issue would enhance the liquidity of the stock to a great extent since they were more actively traded than GDRs. As a consequence, it would also enhance visibility and corporate profile of GAIL to a large extent.

Moreover, it would give access to investors restricted from investing in securities which were not listed in the US.

The ADR route emerged as an option during its international road shows for the public issue in UK, Singapore, Hong Kong and the US, where the fund managers made the suggestion to the company.