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Chapter: 11th Commerce : International Finance

Global Depositary Receipt (GDR) and its Features

GDR is an instrument issued abroad by a company to raise funds in some foreign currencies and is listed and traded on a foreign stock exchange.

Global Depositary Receipt (GDR)

GDR is an instrument issued abroad by a company to raise funds in some foreign currencies and is listed and traded on a foreign stock exchange.

Process of Issuing GDRs

There are four steps in the process of issuing GDRs as follows.

1.        The company issuing GDRs hands over its shares to one Domestic Custodian Bank (DCB).

2.        The DCB requests the Overseas Depository Bank (ODB) situated in the foreign country for issuing the shares as GDR.

3.        The ODB converts the shares shown in rupees into GDR which are denominated in US dollars.

4.        Finally, ODB issues them to the intending investors.

 

Features of GDR

1.        It is a negotiable instrument and can be traded freely like any other security.

2.        Indian companies with sound financial track of three years are readily allowed to access international financial markets through GDR. However clearances are required from the Foreign Investment Promotion Board (FIPB) and the Ministry of Finance.

3.        GDRs are issued to  investors  across the country. It is denominated in any acceptable freely convertible currency.

4.        GDR is denominated in any foreign currency but the underlying shares would be denominated in local currency of the issuer.

5.        The holder is entitled to dividend and bonus on the value of shares underlying the GDR.

6.        The investor can convert GDR into equity shares, and sell the shares mentioned in the GDR through a local custodian. This provision can be used after 45 days from the date of issue.

7.        Under GDR, the issuing company transacts with only one entity for all its transactions.

 

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11th Commerce : International Finance : Global Depositary Receipt (GDR) and its Features |


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