What is a Global Depositary Receipt (GDR)?

The GDR full form is Global Depositary Receipt. It refers to a financial receipt that easily allows companies to raise capital from all international investors while their original shares remain listed in their home country. The main objective of GDR is to represent the shares of a company that are issued by a depository bank of another country. These receipts are traded through a foreign stock exchange. This makes the process easier for global investors to invest in companies from other countries without directly buying their local shares. This article explains what is global depository receipt, the characteristics of GDR, and more.  

Global Depositary Receipts Example 

One of the famous examples of Global Depository Receipt issue is by Infosys Limited. The company has issued millions of GDRs, which were listed on the Luxembourg Stock Exchange. This was done to attract all the investors from the international markets. In each of the receipts, a particular number was issued that signifies the original shares held within a custodian bank in India. JPMorgan Chase handled the issuance, which acted as the depositary bank responsible for creating and distributing GDRs. This process helped Infosys raise significant capital while expanding its investor base beyond India. 

Many Indian companies have issued GDRs to raise funds from all the international markets. Some of them are mentioned below:  

• Larsen & Toubro 
• Mahindra & Mahindra 
• State Bank of India 
• Axis Bank 

After understanding global depository receipts example, the article further explains what is GDR procedure. 

Global Depository Receipts Procedure 

The process of issuing Global Depositary Receipts (GDRs) involves several simple steps: 

• Company Decision: With the help of GDRs the company decides to raise the funds from all the international investors.  
• Appointment of Depositary Bank: The company appoints an international depositary bank to manage the issue. 
• Share Deposit: A specific number of its shares is deposited by the company with a domestic custodian bank. 
• Issuance of GDRs: The depositary bank issues GDRs representing those shares to investors in foreign markets. 
• Trading on Exchanges: These GDRs are then listed and traded on international stock exchanges where global investors can buy or sell them. 

With the help of this simple process, all the companies can access the global capital markets while giving the international investors an easy way to invest in foreign companies. 

Characteristics of Global Depository Receipts 

The following are some key characteristics of global depository participants. 

• Issuing Entities: GDRs are issued by financial institutions or banks on behalf of foreign companies seeking to raise funds from global markets. 
• Global Trading: They provide investors with a simpler way to invest in foreign companies without having to deal with the difficulties of international markets because they are traded on a number of international stock exchanges. 
• Ownership Representation: The issuing bank or financial institution owns the underlying shares of a GDR, which represents ownership in a foreign company. 
• Currency Denomination: They are frequently available to foreign investors because they are issued in major currencies such as US dollars or euros. 
• Dividend Rights: GDR holders have the right to receive dividends and other benefits linked to the underlying shares. 
• Convertible into Shares: GDRs can be converted into the corresponding shares if the investor chooses to do so. 
• Regulatory Compliance: GDRs must adhere to regulations in both the issuing country and the international market where they are traded. 

After understanding global depository receipts meaning, the article further explains the advantages and disadvantages of GDR. 

Advantages and Disadvantages of Global Depository Receipts 

The table below shows the advantages and disadvantages of global depository receipts. 

Conclusion 

Global Depositary Receipt (GDR) is a financial instrument that helps companies in raising funds from international investors. This way, companies can access the global capital markets easily, expand their investor base, and improve visibility in international markets. Investors get an opportunity to invest in foreign companies without directly trading in overseas stock exchanges. Understanding the concept, procedure, and features of GDRs helps investors make more informed investment decisions. With the availability of modern platforms, investors can also track global market opportunities and manage investments more easily through an online trading app.