Global Depository Receipt (GDR)

Context: India Luxemberg Summit was the first bilateral summit in two decades between the 2 nations.

  • Luxembourg is one of the most important financial centres globally.
  • Several Indian companies have raised capital by issuing Global Depositary Receipts at the Luxembourg Stock Exchange.

Analysis

  • Global Depository Receipt (GDR) is an instrument in which a company located in domestic country issues one or more of its shares or convertibles bonds outside the domestic country.
  • In GDR, an overseas depository bank i.e. bank outside the domestic territory of a company, issues shares of the company to residents outside the domestic territory.
  • Such shares are in the form of depository receipt or certificate created by overseas the depository bank.
  • Issue of Global Depository Receipt is one of the most popular ways to tap the global equity markets.
  • A company can raise foreign currency funds by issuing equity shares by way of GDRs in a foreign country.
  1. A company based in Bangalore, India willing to get its stock listed on German stock exchange can do so with the help of GDR.
  2. This India based company shall enter into an agreement with the German depository bank, who shall issue shares to residents based in Germany after getting instructions from the domestic custodian of the company.
  3. The shares are issued after compliance of law in both the countries.
  • GDRs can be denominated in any freely convertible currency.
  • GDRs are also known as international depository receipt (IDR).
  • Global Depository Receipt (GDR) issued in US are known as American Depository Receipts (ADR)
  • They will be called Indian Depository Receipts if they are issued in India on the basis of the shares/securities of the foreign company.
  • Companies issue GDRs to attract interest from foreign investors.
  • GDRs enable a company, the issuer, to access investors in capital markets outside of its home country.
  • GDR is a negotiable security that can be traded on the stock exchange, if so desired.
  • In India any company – whether private limited or public limited or listed or unlisted – can issue GDRs. However listed DRs enjoy some tax benefits.
  • GDR is denominated in any foreign currency but the underlying shares would be denominated in the local currency of the issuer.
  1. The holder is entitled to dividend and bonus on the value of shares underlying the GDR.
  2. GDRs provide a lower-cost mechanism in which these investors can participate and rules of the Domestic Market regulator (Securities and Exchange Board of India in case of an Indian Company issuing GDR) won’t apply to them.

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