Адр И Гдр Форекс

What Is a Global Depositary Receipt (GDR)?

A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank. It represents shares in a foreign company and trades on the local stock exchanges in investors' countries. GDRs make it possible for a company (the issuer) to access investors in capital markets beyond the borders of its own country.

GDRs are commonly used by issuers to raise capital from international investors through private placement or public stock offerings.

A global depositary receipt is very similar to an American depositary receipt (ADR) except that an ADR only lists shares of a foreign company in U.S. markets.

Understanding Global Depositary Receipts (GDRs)

A global depositary receipt is a type of bank certificate that represents shares of stock in an international company. The shares underlying the GDR remain on deposit with a depositary bank or custodial institution.

While shares of an international company trade as domestic shares in the country where the company is located, global investors located elsewhere can invest in those shares through GDRs.

Using GDRs, companies can raise capital from investors in countries around the world. For those investors, the GDRs will be denominated in their home country currencies. Since GDRs are negotiable certificates, they trade in multiple markets and can provide arbitrage opportunities to investors.

GDRs are generally referred to as European Depositary Receipts, or EDRs, when European investors wish to trade locally the shares of companies located outside of Europe.

GDR transactions tend to have lower costs than some other mechanisms that investors use to trade in foreign securities.

Example of a GDR

A U.S.-based company that wants its stock to be listed on the London and Hong Kong Stock Exchanges can accomplish this via a GDR. The U.S.-based company enters into a depositary receipt agreement with the respective foreign depositary banks. In turn, these banks package and issue shares to their respective stock exchanges. These activities follow the regulatory compliance regulations for both of the countries.

GDR Characteristics

GDRs are exchange-traded securities that are not directly backed by any underlying collateral (as shares of a company are backed by their assets). GDRs instead represent ownership of shares in a foreign company, where those actual shares are traded abroad.

Different GDRs may also have specific characteristics that differ from one to the next. These may include:

• Conversion ratio: The conversion ratio is the number of shares of the underlying company that are represented by each GDR. This ratio can vary from one GDR to another, and it may be adjusted over time to reflect changes in the underlying shares.
• Denomination: GDRs can be denominated in different currencies, such as U.S. dollars, euros, or pounds sterling. The currency used for a GDR may impact its price and the risks associated with the investment, such as currency risk, as the price of its shares overseas are priced in local currency.
• Sponsorship: GDRs are issued by depository banks, and the specific bank that sponsors a GDR may vary from one GDR to another. Different banks may have different reputations, financial strength, and other characteristics that could impact the risks and potential returns of a GDR.
• Fees: GDRs may also vary in terms of the fees that are charged for issuing, trading, or holding the GDRs. These fees can impact the overall cost and potential returns of an investment in a GDR.

Special Considerations

A GDR distributed by a depositary bank represents a particular number of underlying shares—anywhere from a fraction to multiple shares—in a specific international company. The particular share makeup for a GDR depends on how attractive an investment it will make to local investors. For instance, in the U.S., a depositary bank would want to create GDRs with the number of shares, or fractions thereof, and associated U.S. dollar value that U.S. investors might be most comfortable with.

The depositary bank first buys the shares of the international company (or, receives them from an investor who already owns them). It then bundles a certain number of them. This bundle is represented by a GDR. The GDR is then issued by the depositary bank on a local stock exchange. The underlying shares remain on deposit with the depositary bank (or custodian bank in the international country).

The trading process involving GDRs is regulated by the exchange on which they trade. For example, in the U.S., global depositary receipts are quoted and trade in U.S. dollars. They also pay dividends with U.S. dollars. They're subject to the trading and settlement process and regulations of the exchange where their transactions take place.

Typically, GDRs are offered to institutional investors via a private offer, due to the fact that they can take advantage of exemptions from registration under the Securities Act of This makes GDRs an efficient and cost-effective way to access cross-border capital. In fact, because of their flexibility and efficiencies, issuers from regions such as the Middle East and Africa, Asia Pacific, Latin America as well as Europe have increased their use of GDR programs to help them achieve the objectives they have for raising capital.

Trading GDRs

International companies issue GDRs to attract capital from foreign investors. GDRs trade on the investors' local exchanges while offering exposure to an international marketplace. A custodian/depositary bank has possession of the GDRs underlying shares while trades take place, ensuring a level of protection and facilitating participation for all involved.

Brokers who represent buyers manage the purchase and sale of GDRs. Generally, the brokers are from the home country and operate within the foreign market. The actual purchase of the assets is multi-staged, involving a broker in the investor's country, a broker located within the market of the international company, a depositary bank representing the buyer, and a custodian bank.

Brokers can also sell GDRs on an investor's behalf. An investor can sell them as-is on the proper exchanges, or the investor can convert them into regular stock for the company. Additionally, they can be canceled and returned to the issuing company.

Traders dealing in GDRs often compare the, for example, U.S. dollar price of the GDR with the U.S. dollar equivalent price of the shares trading on the international company's domestic exchange. They'll typically buy the less expensive security and sell the other. Eventually, this arbitrage trading activity causes the underlying shares and the GDRs to reach parity.

Advantages and Disadvantages of GDRs

Advantages

• GDRs help international companies reach a broader, more diverse audience of potential investors.
• They can potentially increase share liquidity.
• Companies can conduct an efficient and cost-effective private offering.
• Shares listed on major global exchanges can increase the status or legitimacy of an otherwise unknown foreign company.
• For investors, GDRs provide the opportunity to diversify portfolios internationally.
• GDRs are more convenient and less expensive than opening foreign brokerage accounts and purchasing stocks in foreign markets.
• Investors don't have to pay cross-border custody or safekeeping charges.
• GDRs trade, clear, and settle according to the investor's domestic process and procedures.
• U.S. holders of GDRs realize any dividends and capital gains in U.S. dollars.

Disadvantages

• GDRs may have significant administrative fees.
• Dividend payments are net of currency conversion expenses and foreign taxes.
• The depositary bank automatically withholds the amount necessary to cover expenses and foreign taxes.
• U.S. investors may need to seek a credit from the Internal Revenue Service (IRS) or a refund from the foreign government's taxing authority to avoid double taxation on capital gains realized.
• GDRs have the potential to have low liquidity, making them difficult to sell.
• In addition to liquidity risk, they can have currency risk and political risk.
• This means that the value of GDR could fluctuate according to actual events in the foreign county, such as recession, financial collapse, or political upheaval.

GDRs vs. ADRs

Global Depositary Receipts

Global depositary receipts allow a company to list its shares in more than one country outside of its home country. For example, a Chinese company could create a GDR program that issues its shares through a depositary bank intermediary into the London market and the United States market. Each issuance must comply with all relevant laws in both the home country and foreign markets individually.

American Depositary Receipts

On the other hand, an American depositary receipt, which also represents shares of an international company, lists only on U.S. stock exchanges. To offer ADRs, a U.S. bank will purchase shares on a foreign exchange. The depositary bank will hold the underlying shares and issue an ADR for domestic trading.

Sponsored ADRs

A bank issues a sponsored ADR on behalf of a foreign company. The bank and the business enter into a legal arrangement. Usually, the foreign company pays the costs of issuing an ADR and retains control over it, while the bank handles the transactions with investors.

Sponsored ADRs are categorized by the degree the foreign company complies with SEC regulations and American accounting procedures.

Unsponsored ADRs

A bank may also issue an unsponsored ADR. This certificate represents no direct involvement, participation, or even permission from the foreign company.

Theoretically, there could be several unsponsored ADRs for the same foreign company, issued by different U.S. banks. These different ADRs could also offer varying dividends. With sponsored programs, there is only one ADR, issued by the depositary bank working with the foreign company.

The Bottom Line

For U.S. investors, global depositary receipts offer a way to own equity in foreign companies while trading its representative shares on a local stock exchange. Certainly, GDRs have their risks, including home country economic and political risk, currency risk, and liquidity risk.

However, GDRs also offer noteworthy benefits that include the potential for a globally diversified portfolio, the ability to trade, clear, and settle transactions according to local regulations, no cross-border custody/safekeeping charges, and dividend payments in U.S. dollars.

Global Depositary Receipts vs. American Depositary Receipts: An Overview

Investors and companies may wish to invest in publicly traded equity stocks that are not domiciled directly in their own country. These securities can add diversification to a portfolio and also provide a broader universe for identifying the highest potential return through stocks.

Domestic-domiciled securities are freely traded on their corresponding domestic exchanges daily through brokers and brokerage platforms. These domestic domiciled securities are issued and managed by the executive management of the domestic company. Depositary receipts, however, are shares of a foreign company offered in another foreign market. Depositary receipts can be structured in multiple ways and allow foreign investors to invest in foreign companies through their own domestic exchanges.

If a company wants to offer its equity shares in a foreign market it must work with a depositary bank. This means the underlying company seeking to raise money through the specially structured share issuance must partner with a depositary bank to do so. As an intermediary, the depositary bank manages the share issuance, administration aspects of the share listing, and other details involved with the shares being offered. The underlying company does not necessarily have direct access to manage their depositary receipt shares in the same way that they manage their domestic shares.

Global Depositary Receipts (GDRs)

A global depositary receipt is one type of depositary receipt. Like its name, it can be offered in several foreign countries globally. Depositary receipts only offered in a single foreign market will typically be titled by that market’s name, such as American depositary receipts, discussed below, and EDRs, LDRs, or IDRs.

Global depositary receipts are typically part of a program that a company builds to issue its shares in foreign markets of more than one country. For example, a Chinese company could create a GDR program that issues its shares through a depositary bank intermediary into the London market and the United States market. Each issuance must comply with all relevant laws in both the home country and foreign markets individually.

American Depositary Receipts (ADRs)

American depositary receipts are shares issued in the U.S. from a foreign company through a depositary bank intermediary. ADRs are only available in the United States. In general, a foreign company will work with a U.S. depositary bank as the intermediary for issuing and managing the shares.

ADRs can be found on many exchanges in the U.S. including the New York Stock Exchange and Nasdaq as well as over-the-counter (OTC). Foreign companies and their depositary bank intermediaries must comply with all U.S. laws for issuing ADRs. This makes ADRs subject to U.S. securities laws as well as the rules of exchanges.

ADRs are alternative investments that include additional risks that should be thoroughly analyzed by American investors. Hypothetically, an investor could choose to broaden their investing universe by choosing to consider ADRs. ADRs ultimately increase the investment options for U.S. investors. They can also simplify international investing by providing the offering to U.S. investors through U.S. market exchanges.

For U.S. investors, ADRs can have some unique risks. Primarily the risk of currency found in conversion with the payment of dividends. Otherwise, ADRs are denominated in U.S. dollars but their initial offering value is based on a valuation that is created in terms of their home currency.

Special Considerations: Investing in Depositary Receipts

Depositary receipts, in general, can come with their own set of unique risks. It is important for investors in any type of depositary receipt to understand the prospectus document detailing the investment.

U.S. investors can potentially invest in either ADRs or GDRs. ADRs are only offered by a foreign company through a share offering in the United States. GDRs will usually be offered in multiple countries as part of a GDR program.

ADRs and GDRs give U.S. investors the opportunity to access foreign investment in their home market. While the issuing value of both ADRs and GDRs will be based on the underlying company’s valuation, the interest a company receives in foreign markets combined with its own domestic trading will have an influence on the open market trading price.

Footer menu

What is ADR?

ADR stands for American Depository Receipts, which are a kind of negotiable security instrument that is issued by a US Bank representing a specific number of shares in a foreign company that trades in US financial markets.

ADRs make it easy for US investors to purchase stock in foreign companies.

What is GDR?

GDR stands for Global Depositary receipts. It is a type of bank certificate that acts as shares in foreign companies. It is a mechanism by which a company can raise equity from the international market.

GDR is issued by a depository bank located overseas or in other words, GDR is issued by a depository bank which is located outside the domestic boundaries of the company to the residents of that country.

GDR is mostly traded in the European Market. Issuing GDR is one of the best ways to raise equity from overseas.

Example of GDR

A company located in India, looking to get stock listed on the French Stock Exchange, will get into an agreement with a depository bank of France, which in turn will issue shares to the residents of France after getting permission from the company’s domestic custodian.

Following are some of the points of difference between ADR and GDR

This concludes the topic on the difference between ADR and GDR. It serves as an important concept of Business Studies for Commerce Students. For more such interesting topics, stay tuned to BYJU’S.

The full form of GDR is Global Depository Receipt. Global Depository Receipt (GDR) are certificates issued by a depository bank, which purchases foreign company shares and deposits them in the account. GDRs are commonly used to raise capital from international investors through public stock offerings or private placement. It is a negotiable financial instrument issued by a foreign bank representing a foreign firm's listed securities on a stock exchange other than the United States (US). 

What is a Global Depository Receipt (GDR)?

Indian companies can only get their shares listed on foreign exchanges through Global Depository Receipts (GDR). It is a foreign currency-denominated negotiable instrument. GDRs help Indian companies get foreign funds and gain access to international capital. 

Indian companies trade shares on international exchanges except for the US through a GDR. A foreign depository issues the depository receipts for Indian companies. The depository bank is the intermediary that acts as the custodian of the shares issued by the Indian company.

Global depository receipts features

• GDRs are negotiable financial instruments traded on the stock exchanges like any other security. 
• Indian companies can access foreign funds through GDRs.
• Only companies with a three-year sound financial record can get access to GDRs. Thus, Indian companies should get clearance from the Ministry of Finance and Foreign Investment Promotion Board (FIPB) to obtain GDRs.
• The depository bank can convert GDRs into shares and trade them on the domestic stock exchanges.
• GDRs are instruments denominated in foreign currencies. The shares are denominated in the deposit receipt issuer's local currency.
• The investors get bonus shares and dividends of the underlying GDRs.
• GDRs are issued to investors throughout the country since they can be denominated as multiple forms of freely convertible currency.
• Investors can convert GDRs into equity shares. They can sell the shares mentioned in the GDR through a local custodian after 45 days from the issue date.

What is GDR in the stock market?

GDRs are negotiable certificates that represent ownership of a specified number of shares of a company issued by depositary banks. They can be traded and listed independently from the underlying shares. Foreign companies can trade in a country's stock market through GDRs, except the US stock market. Those holding GDRs can surrender them to the bank and convert them into shares.

GDRs are listed on non-US stock exchanges like the Luxembourg or London Stock Exchange. The GDR market is institutional and thus offers low liquidity but allows trading across many significant countries.

GDR is the only way through which Indian companies can make their shares available on various foreign exchanges. Thus, the company can use the issued negotiable certificates to raise funds outside of India by trading the shares on foreign exchanges.

The value of a GDR depends on the value of the underlying share. But, the shares in the foreign country are settled and traded separately from the underlying share. Usually, 1 GDR is equivalent to 10 underlying shares. However, the GDR to the number of shares ratio can differ.

Global depository receipts in the Indian market

The Securities and Exchange Board of India (SEBI) published a comprehensive framework to issue Depository Receipts (DR) in October The new rules allow easier access to foreign capital through GDRs and ADRs.

The International Financial Services Centre (IFSC) in Gujarat allows Indian companies to list their global receipts to raise funds through foreign sources. They can only offer their shares on overseas exchanges through GDRs. GDRs can be issued by private placement, public offering or any other method acceptable in the relevant jurisdiction, according to the new rules. 

Indian companies who want to issue GDRs must get Ministry of Finance and FIPB clearance. Only listed companies can issue GDRs in overseas marketplaces. GDRs allow investors to gain access to international companies' capital markets without dealing with language, currency or tax restrictions.

An Indian company that wants its shares to be listed on foreign stock exchanges, such as the London and Hong Kong Stock Exchanges, except the US stock exchange, can use a GDR. The Indian company should engage with a foreign depository bank in a depositary receipt agreement. These banks issue shares on their respective stock exchanges based on regulatory compliance in both nations.

Following are a few Indian companies that have issued GDRs:

• UPL is listed on the Singapore Stock Exchange
• Aditya Birla Capital is listed on the Luxembourg Stock Exchange
• GAIL India is listed on the London Stock Exchange

Global depository receipts example

Example 1: 'Wipro' wants to list its shares in Singapore. 'Wipro' has to deposit shares with a Singapore Bank. Singapore Bank will issue a receipt against these shares. Every receipt given by the Singapore Bank represents a particular number of shares of 'Wipro'.

Example 2: An Indian company issued ADR in the American market and wishes to extend it to other developed countries, such as Europe. The company can sell the ADR to the public of Europe as GDR. GDR can be denominated in any freely convertible currency and be issued in more than one country.

Global depository receipts procedure

Following is the process of issuing GDRs:

• Indian companies issue equity shares in Indian rupees to a domestic custodian bank which transfers it to an overseas depository bank. The shareholders, board of directors, financial institutions and regulatory authorities must approve the issuance of GDRs before they are issued.
• The domestic custodian bank physically holds the equity shares. In the company's books, the depository bank is listed as the owner of the company's equity shares. Equity shareholders’ voting rights are transferred to the depository bank.
• The domestic custodian bank acts as the agent of the overseas depository bank. It holds the equity shares in its possession. 
• The overseas depository bank provides GDRs in foreign currency. The bank converts the GDRs into shares to trade them on the country's stock exchange. The country's investors can sell and buy the shares just like any other security.

Brokers representing buyers manage the sale and purchase of GDRs. Usually, the brokers belong to the home country and operate within the foreign market. The actual purchase of the assets is multi-staged, involving a broker located within the market of the international company, a broker in the investor's country, a custodian bank and a depositary bank representing the buyer.

Brokers can also sell GDRs on behalf of an investor. An investor can sell them on the proper exchanges or convert them into regular stock for the company. Additionally, they can be cancelled and returned to the issuing company.

Global depository receipts advantages and disadvantages

Below are the advantages of GDRs:

• They help multinational businesses to connect with many investors.
• They give investors a chance to diversify their holdings globally.
• They can boost the liquidity of shares.
• Buying equities on foreign markets by opening international brokerage accounts is more time-consuming and expensive than using GDRs.
• Companies can carry out a private offering that is efficient and affordable.
• Shares listed on international markets can raise the credibility of a foreign business.
• GDRs are cleared, traded and settled in accordance with the investor's domestic policies.
• There are no safekeeping fees or cross-border custody for investors.
• GDRs are easy and more cost effective than buying stocks on international exchanges.
• Since GDRs are investments, they are not subject to capital gains tax when a non-resident transfers the GDRs of a listed company to another non-resident outside of India.

Below are the disadvantages of GDRs:

• The administrative costs associated with GDRs could be high.
• They may have poor liquidity, making it challenging to sell them.
• Dividend payments are made after deducting international taxes and currency exchange fees.
• They may face political and currency risks.
• Certain occurrences in other countries, such as a financial meltdown, crisis or political instability, can cause the value of the GDR to change.
• Investors are exposed to economic risks, as the foreign company's home nation may undergo bank collapses, a recession or political turmoil.

Frequently Asked Questions on GDR

What is meant by GDR?

A Global Depository Receipt (GDR) is a depositary receipt issued by a depository bank that purchases shares of foreign companies. Indian companies can get their shares listed on foreign exchanges through GDRs. A GDR is a foreign currency-denominated negotiable instrument. Companies can trade shares on international exchanges except for the US through a GDR. 

What are ADR and GDR?

An American Depository Receipt (ADR) is a negotiable certificate issued by a US bank reflecting securities of a foreign business denominated in US dollars and trading on the US stock market. American investors can purchase ADRs to make investments in non-US corporations. The dividend is paid in US dollars to US investors holding ADRs. 

A Global Depository Receipt (GDR) is a depositary receipt issued by a depository bank that purchases shares of foreign companies. Indian companies can get their shares listed on foreign exchanges through GDRs. A GDR is a foreign currency-denominated negotiable instrument. Companies can trade shares on international exchanges except for the US through a GDR. 

What are the characteristics of GDR?

Below are the characteristics of GDRs:

• They are unsecured securities.
• They can be converted into shares.
• They are traded and listed on the stock exchange.
• GDR holders do get voting rights.
• Investors get bonus shares and dividends of the underlying GDRs.

What is the difference between ADR and GDR?

The following are the differences between ADR and GDR:

• US depository banks issue ADRs in exchange for shares of non-US companies traded on the US stock market. International depository banks issue GDRs to represent shares of a foreign company traded on the international market.
• GDRs can be negotiated anywhere around the globe. ADRs can only be negotiated in the USA.
• ADRs are listed on the American Stock Exchange for trading. GDRs are listed on stock exchanges outside the US, such as the London and Luxembourg Stock Exchanges.
• The Securities and Exchange Commission's (SEC) guidelines for ADR disclosure are strict. GDR has less stringent disclosure rules.
• The ADR market is for retail investors with substantial investor activity and where a company’s shares are valued appropriately. The GDR is institutional and has less liquidity.

In which country can GDR be issued?

GDRs can be issued in any country except the USA.

Issuer

A company that plans to tap the foreign market through DRs complying with the global issue mechanism. The Issuer will, along with the Lead Manager to the issue decide the following issues, namely:

1. Public-private placement
2. The number of GDRs/ADRs to be issued
3. The issue price

Lead Manager

The lead manager is the person responsible for marketing the issue. He also advises the Issuer what type of security should be issued like equity, bonds, FCCB along with the rate of interest as per coupon rate, the price of the security (conversion price), etc.

Co- Managers/ Underwriters

They assist the Lead Manager in fulfilling his obligations

Depository

It is the bank authorized by the Issuer to issue GDRs/ADRs against the issue of ordinary shares of the Issuer (the “Depository”). It is the overseas agent of the Issuer

Custodian

It is the banking company (situated in India), acting as a custodian for the ordinary shares of an Indian Company, issued by it against GDRs/ADRs. The Custodian acts in coordination with the Depository. The physical possession of the shares is with the Custodian.

Legal Advisors

They assist the Issuer, Lead Manager, Co-Managers and the Underwriters in the preparation of the prospectus, depository agreement, indemnity agreement and subscription agreement and help the Issuer to comply with proper disclosures relating to the issue.

Auditors

The Issuer must appoint auditors who will prepare the auditor’s report for inclusion in the prospectus, provide requisite consent and comfort letters and reconcile the Issuer’s accounts with International accounting standards (the “Auditors”)

Why Muds:

We undertake complete documentation work and we take the onus of fulfilling all complex formalities related to floating of these issues. Our pre-screening programs are revered and well adapted to the

market dynamics and give a clear picture to our clients of the ensuing prospects. We also do an exhaustive due diligence and a detailed assessment before and after floating of FCCBs, ADRs & GDRs. Our services include complete range of formalities and procedures connected with the issuance, right from the start.

Contact details of professionals at MUDS

MUDS undertake following activities during floating GDR, ADR and FCCBs:

• Assessment of the GDR markets
• Help issuer select the Lead Manager, Custodian bank
• Work closely with a lead Investment Banker under Securities and Exchange Commission in the US, or under Financial Services Act in the UK, or the appropriate regulatory authority in Europe
• Co-ordinate with team consisting of legal, technical, and financial key persons from the Lead Manager, Co-Managers, Underwriters, Legal Advisors, and Auditors would visit the Issuer for carrying on legal and accounting due diligence.
• Finalize the issue structure with the Lead Manager
• Advise on size, pricing and marketing of the issue.
• Help select the with the Lead Manager and custodian bank.
• Coordinate on duties of team of legal counsel on Deposit Agreement and securities law matters
• Coordinate with technical & financial experts and represents meetings of issuers, analysts
• Help formulate the pricing for these issues as per prescribed norms
• Provide advice/perspective on type of program, exchange or market on which to list or quote
• Advise on Basic Ratio e.g 1 ADR issued for how many shares
• Help in furnishing and preparing full details in prescribed form of the issue with RBI
• Enables companies to list ADRs/GDR on NASDAQ and NYSE
• Provide a certificate to the RBI and the SEBI stating the sectoral caps for foreign investment and it includes following:
  • Reporting to the RBI
  • Stock Exchanges Approval
  • Filings with SEBI
  • Application of avoidance of double taxation agreement
  • Stamp Duty and Transfer Tax
  • Other Approvals
  • Prepare a quarterly return in the prescribed form to the Reserve Bank
  • Preparing details of all expenses related to issuance, getting further approval from RBI in case of reimbursable ceiling limit on expenses exceeds.
• Perform all reporting requirements such as:
  • Preparing comprehensive report after issuance like the purpose of raising the GDR.
  • Details about Depository, Lead Manager, Sub-Managers to the Issue, Indian Custodian
  • Details of NIC code in case of rerouting, details of authorized and issued paid-up capital after the issue
• Details of listing arrangements
  • Amount raised and the amount repatriated
  • Preparing Main Agreements and Related Documents
  • In Case of GDR issue
  • Escrow Agreement
  • Placing Agreement for Lead Manager and the Issuer
  • Deposit Agreement to be executed by the Depository