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Learn about Global Depository Receipts (GDRs), their working, features, advantages, risks, and real-world examples.
Global Depository Receipts (GDRs) are financial instruments that allow companies to raise funds from international markets. By issuing GDRs, businesses can access a larger pool of investors, enhance global visibility, and diversify their capital base. The following sections explain what GDRs are, how they work, their features, advantages, disadvantages, and practical examples.
A Global Depository Receipt (GDR) is a negotiable financial instrument issued by a depository bank, representing shares of a company listed in another country. GDRs are traded on international exchanges, making it easier for investors across the world to invest in companies without dealing directly with local market procedures. They serve as a bridge between global investors and companies seeking to raise foreign capital.
The working of GDRs involves coordination between the issuing company, a domestic custodian bank, and an international depository bank. The process can be outlined as follows:
A company issues shares in its home country.
These shares are held by a custodian bank in the home country.
The custodian bank informs an overseas depository bank.
The depository bank issues GDRs, which represent these shares, to investors in international markets.
Investors can trade these GDRs on global exchanges, while the depository bank manages dividends and other entitlements.
GDRs have distinct characteristics that make them attractive for companies and investors. The table below highlights the main features:
| Feature | Description |
|---|---|
International Trading |
GDRs are listed and traded on global exchanges like the London Stock Exchange. |
Denominated Currency |
Typically issued in US Dollars or Euros. |
Representation |
Each GDR represents a fixed number of underlying shares |
Accessibility |
Provides global investors access to foreign companies. |
Custody Arrangement |
Shares are held by a custodian bank in the issuing country. |
Dividend Rights |
Investors receive dividends in the currency of issuance. |
The benefits of issuing and investing in GDRs include:
Provides companies access to foreign capital markets.
Enhances international visibility and reputation.
Broadens the investor base beyond domestic markets.
Allows investors to diversify their portfolio globally.
Simplifies the investment process for international participants.
Despite their advantages, GDRs also carry certain risks:
Exposure to foreign exchange fluctuations.
Additional compliance and regulatory requirements.
Higher issuance costs compared to domestic fundraising.
Dependence on global market conditions and investor appetite.
Several Indian companies have issued GDRs to tap into international capital markets. For instance:
Infosys and ICICI Bank issued GDRs on the London Stock Exchange.
State Bank of India (SBI) has also raised funds using GDRs.
Such examples highlight how companies use GDRs to attract foreign investment and strengthen global presence.
Global Depository Receipts (GDRs) act as an important link between companies and global investors, enabling cross-border fundraising and international participation. While they offer benefits like increased visibility and capital access, they also come with risks related to costs and regulations. Understanding GDRs helps investors and businesses make informed decisions in international markets.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
The difference between a GDR and an ADR is that a GDR is issued for trading in international markets such as Europe, while an ADR (American Depository Receipt) is issued for trading specifically in US markets.
A depository receipt example is when a company issues shares in its home country, and a depository bank abroad issues certificates representing those shares for international investors to trade.
An example of a global depository receipt in India is ICICI Bank issuing GDRs that were listed on the London Stock Exchange, allowing global investors to participate in the bank’s growth.
Global depository receipts are financial instruments issued by an international depository bank representing ownership of a company’s shares, enabling global investors to invest in foreign companies with simplified access.
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