Indian companies can get listed on foreign exchanges only through a Global Depository Receipt (GDR). GDR is a negotiable instrument. Therefore, through a GDR, Indian companies get access to foreign funds. This article covers what a GDR is, its features, how they are issued, how they work, and ADR vs GDR.
What is GDR?
Global Depository Receipt is a foreign currency-denominated negotiable instrument. Indian companies can trade their shares on international exchanges other than the US through a GDR. A foreign depository issues the depository receipt for an Indian company.
The depository receipts trade like shares on the domestic exchange of that country. As a result, investors can buy and sell just like any other share.
The Depository Bank is an intermediary who acts as the custodian of the shares that the Indian company issues. Thus, GDR helps Indian companies get access to foreign funds.
For example, let’s consider Wipro. The company wants to list its shares in Singapore. Wipro has to deposit a substantial number of shares with a Singapore Bank. The Singapore Bank will then issue a receipt against the shares. Therefore, every receipt given by the bank represents a particular number of shares of the company.
Features of GDR
Following are the features of Global Receipts:
- They are negotiable financial instruments. These instruments trade on the stock exchange like any other security.
- Indian companies can get access to foreign funds through GDRs. However, only companies with a sound financial record of three years can get access to GDRs. Thus, to obtain GDRs, Indian companies should get clearance from the Foreign Investment Promotion Board (FIPB) and the Ministry of Finance.
- The depository bank can convert the GDR into shares and trade them on their domestic stock exchange.
- These Receipts are foreign currency-denominated instruments. However, the shares are denominated in the local currency of the deposit receipt issuer.
- The investors get dividend and bonus share of the underlying Global Depository Receipt.
Learn: American Deposit Receipt
How are GDRs Issued?
Following is the process of issuing Global Depository Receipts:
- Indian corporations issue their equity shares (in Indian rupees) to an overseas depository bank through a domestic custodian bank.
- The local custodian bank then acts as the overseas depository bank’s agent and holds the equity shares in its possession.
- The overseas depository bank then provides GDRs (in foreign currency). The bank then converts the GDRs into shares to trade on the country’s stock exchange. Thus, the country’s investors can buy and sell the shares just like any other security.
How Do Global Depository Receipts Work?
GDR is the only way through which Indian firms can make their shares available on different foreign exchanges. Therefore, the company can use the negotiable certificate issued to raise funds outside of India. Companies can do this by trading the shares on foreign exchanges.
Furthermore, the value of a Global Depository Receipt depends on the value of the underlying share. However, shares in the foreign country are traded and settled separately from the underlying share. Also, yypically, the 1 GDR is equivalent to 10 underlying shares. However, the GDR to the number of shares ratio can be different.
Global Depository Receipt In Indian Market
In October 2019, SEBI published a comprehensive framework for issuing depository receipts (DR). Also, the new rules provide easier access to foreign capital via ADRs and GDRs.
The International Financial Services Centre in Gujarat allows Indian firms to list their global receipts. Companies can now raise funds through foreign sources. Global Depository Receipts can now be issued by a public offering, a private placement, or any other method that is acceptable in the relevant jurisdiction, according to the updated rules. Furthermore, companies who want to issue GDRs must first get Ministry of Finance and Foreign Investment Promotion Board clearance (FIPB).
Following are a few Indian firms that have issued Global Depository Receipts:
- Aditya Birla Capital: Listed on the Luxembourg Stock Exchange
- GAIL India: Listed on the London Stock Exchange
- UPL: Listed on the Singapore Exchange
What is the difference between GDR and ADR?
Following are the key difference between GDR and ADR:
|Basis of Difference||Global Depository Receipt||American Depository Receipt|
|Meaning||GDR is a negotiable instrument issued by a foreign depository bank to an Indian company.||ADR is a negotiable instrument issued by a US depository bank to an Indian company.|
|Relevance||Indian companies can trade in any stock exchange other than the US.||Indian Companies can trade in the US stock market.|
|Issued In||Global capital market||United States capital market|
|Listed In||Non-US Stock Exchanges||American Stock exchanges only. NASDAQ, NYSE, etc.|
|Investors||Mostly Institutional Investors||Retail Investors|
|Investor Participation||Less, in comparison to ADR.||More, in comparison to GDR.|
|Liquidity||Less liquid than ADR.||More liquid than GDR.|