Global depository receipt is a receipt for equity shares issued abroad and traded in global or international stock exchange. GDR is a dollar denominated instrument traded on a stock exchange in Europe or in USA or both. GDR represents a certain number of underlying equity shares of the issuing company.
A GDR is an instrument issued abroad and is tested and traded in a foreign stock exchange. A GDRs may contains a set of issued shares of the issuing company. A holder of GDRs can at any time convert it into the number of shares that it contain. Once converted the shares listed and traded is the domestic exchange. GDRs do not carry any voting rights.A GDR is a negotiable instrument denominated in US dollars, that – represents shares issued in a local currency. The shares of the issuing company are issued in the name of an international bank, called the depository who is located in a foreign country. The physical possession of the shares issued are with a “custodian” is the issuing country. The shares are issued to the depository in the local currency. Based on the shares held by it, the depository issues the GDRs in US dollars. The dividend, after withholding taxes etc. is paid by the issuing company to the depositor in the local currency. The depository converts the dividend received into US dollars at the ruling exchange rate and distributes it among the GDR holders. GDRs are bearer instruments and traded freely in international markets either through stock exchange mechanism or an “Over The Counter”(OTC) basis. The settlements are done through international clearing systems like Euro-Clear (Brussels) or CEDEL (London ).
GDRs offer many advantages to the issuing company. The exchange risk is born by the inventors as the payment towards the dividend is made in the local currency. The right to vote is vested only with the depository and is regulated by an agreement between the company and the depository. It enables the company to broaden the capital base by tapping large foreign equity markets.
The value of GDRs depends upon the value of the shares of the company.For the investors, it offers portfolio diversification in a freely traded instrument is a convertible currency.
Now Indian, companies are allowed to tap funds from the International Capital Market through GDRs.
Since 1992, the govt. of India allowed Indian companies to access international capital markets through Euro equity shares. RIL (Reliance India Ltd-Ambani) made the first issue in May 1992 for an amount of $150 million. Up to January 1995, Indian companies had raised $3.6 billion through launching GDR issues, and US $1. billion through launching Euro Convertible Bonds (ECBs).
