A Global Depositary Receipt (GDR), also known as the GDR, is an internationally issued bank certificate that represents shares in foreign companies. These certificates are tradable worldwide within capital markets. Banks issue GDRs by purchasing shares of foreign companies and depositing them into accounts. The main purpose of GDRs is to facilitate the trading of shares, particularly from emerging markets. Generally, the values of the original shares and GDR prices closely correspond.
Indian companies have the opportunity to generate equity capital in the international market by issuing Global Depository Receipts (GDRs). These GDRs are denominated in dollars and do not have any investment restrictions. In order to be eligible for issuing GDRs, a company needs to show a consistent record of good performance (financial or otherwise) for a minimum of 3 years. However, this criterion is less strict for infrastructure projects like power generation, telecommunication, petroleum exploration and refining, ports, airports, and roads.
GDRsGDR offers numerous advantages as it enables the government to utilize the funds generated for various purposes. These include financing imports of capital goods, funding capital expenditure such as purchasing and installing domestic plant, equipment, and buildings, investing in software development, repaying previous external borrowings through prepayment or scheduled repayment, and making equity investments in joint ventures or wholly owned subsidiaries in India.
A negotiable certificate held in a bank of one country represents a specific number of shares of a stock traded on an exchange of another country. To raise money in multiple markets, some companies use global depositary receipts (GDRs). These GDRs allow them to sell their stock on markets in countries other than their headquarters’ country. The GDRs are issued in the currency of the country where the stock is traded. For instance, a Mexican company may offer GDRs priced in pounds in London and in yen in Tokyo. Individual investors in these countries purchase GDRs to diversify their investments into international markets.
GDRs eliminate the complexities of overseas investing, including currency conversion. Their purpose is to allow investors in developed markets to gain economic exposure to companies and emerging economies without directly buying securities in the home market. GDRs are certificates issued by international banks that can circulate globally in capital markets.
Global Depository Receipts (GDRs) are securities issued by banks, which purchase shares of foreign companies and hold them in accounts. GDRs facilitate share trading, particularly from emerging markets, and their prices usually closely correlate with the values of the corresponding shares. These securities can be traded in one or more markets outside the company’s home country. In contrast to American Depository Receipts (ADRs), GDRs provide the benefit of enabling issuers to raise capital simultaneously on multiple markets, thus expanding their shareholder base. The flexibility of the GDR structure has also contributed to its widespread popularity.
GDRs, typically denominated in USD but sometimes in Euros, are commonly listed on European stock exchanges like the London Stock Exchange (LSE) or Luxembourg Stock Exchange. They can also be quoted on SEAQ International and traded on other platforms such as the OTC market in London and the private placement market in the US. GDR programs often include a private placement option for US investors and a separate tranche for non-US investors in Euro markets.
The majority of DR programs from companies in Central and Eastern European countries are established as GDRs. These GDRs are typically listed in London and traded by qualified institutional investors in Euromarkets under the Regulation S regime. Some of them are also traded in the American OTC markets under Rule 144A. A GDR works similarly to any other security, allowing it to be bought and sold. It is usually listed on either the London Stock Exchange or the Luxembourg Stock Exchange. The sponsor bank or brokerage sets a ratio of the number of shares in each GDR, similar to an ADR program.
A significant difference between ADRs and GDRs is that many companies have a one share per GDR ratio in the case of GDRs. This distinction is not present with ADRs. Once listed, GDRs are traded on the exchange just like shares. It is crucial to note that investors who select shares from London or Luxembourg may be from various countries. For instance, a Japanese investor can purchase GDRs of an Indian company listed on the London Stock Exchange and subsequently sell them to a Brazilian investor.
The program’s global nature allows funds to be raised from multiple countries in one location. This is why these depositary receipts are called Global Depositary Receipts, not British Depositary Receipts. The GDRs are traded in Europe on the Euromarket clearing systems Euroclear and Clearstream.
Section 115 AC does not apply to non-residents. Depositary Receipts (DRs) are securities issued by a Depository Bank outside India on behalf of an Indian company. These DRs represent the equity shares of the company and are held as a deposit in local Rupees by a Custodian Bank in India. DRs are traded on various Stock Exchanges, including those in the US, Singapore, and Luxembourg. The DRs listed and traded in the US markets are called American Depository Receipts (ADRs), while those listed and traded elsewhere are known as Global Depository Receipts (GDRs).
DRs in the Indian context are classified as FDI. Indian companies can raise foreign currency resources overseas by issuing ADRs or GDRs, according to the Scheme for Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, and Central Government guidelines. The company’s eligibility to issue ADRs/GDRs is determined based on its permission to offer shares to non-resident individuals under the FDI Scheme.
Indian listed companies that are barred from raising funds from the Indian Capital Market, such as those restricted by SEBI, are not allowed to issue ADRs/GDRs. Unlisted companies that have not yet utilized the ADR/GDR route to raise capital in the international market must list in the domestic market first or at the same time when attempting to issue these overseas instruments.
Unlisted companies that have already issued ADRs/GDRs internationally must list in the domestic market within three years of issuing ADRs/GDRs or when they make a profit, whichever comes first. The ratio for issuing ADRs/GDRs is determined by the Indian company in collaboration with the Lead Manager. The funds raised must be kept abroad until they are needed in India. While awaiting repatriation or use of the funds, the Indian company can invest them in –
Deposits with banks rated by Standard and Poor, Fitch, IBCA, or Moody’s, with a rating not lower than the Reserve Bank’s stipulated rating from time to time; Deposits with authorized dealer branches outside India; and Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less.
There are no restrictions for the use of funds, except for a prohibition on investing in Real Estate or the Stock Market. An Indian company can raise ADRs / GDRs without any monetary limit. Voting rights for shares issued under this Scheme will follow the regulations of the Companies Act, 1956, and any restrictions on voting rights for ADR/GDR issues will be in accordance with the provisions of Company Law.
RBI regulations will be applicable to all shareholders who exercise voting rights in banking companies. Former OCBs that are unable to invest in India through the portfolio route and entities prohibited by SEBI from trading securities are not eligible to subscribe to ADRs/GDRs issued by Indian companies. The pricing of ADR/GDR issues must be equal to or higher than the highest average price derived from two calculations: the average of the weekly high and low closing prices of related shares quoted on the stock exchange over a six-month period prior to the relevant date, and the average of the weekly high and low closing prices of related shares quoted on a stock exchange during a two-week period before the relevant date. The term “relevant date” refers to a specific date that falls thirty days prior to the general body meeting of shareholders, which is held for considering the proposed issue, as per section 81 (IA) of Companies Act, 1956.
The ADR / GDR proceeds can be used for the initial acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public due to their strategic importance. The Government of India has established a limited Two-way Fungibility scheme for ADRs / GDRs, allowing registered stock brokers in India to purchase shares from the market and convert them into ADRs/GDRs as per instructions from overseas investors.
Re-issuance of ADRs /GDRs is permissible for ADRs / GDRs that have been redeemed into underlying shares and sold in the Indian market. An Indian company can also sponsor an ADR / GDR issue, giving its resident shareholders the option to submit their shares for the issuance of ADRs / GDRs overseas. The proceeds from the ADR / GDR issue are sent back to India and distributed among the resident investors who converted their rupee denominated shares.
These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADR / GDR.
Reporting of ADR/GDR Issues The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the form enclosed in Annex-8, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the form enclosed in Annex-9, to Reserve Bank within 15 days of the close of the calendar quarter. June 29, 2006.
The government has authorized unlisted Indian companies, which have previously made an ADR or GDR offering, to conduct sponsored issues without the requirement of being listed for a certain period of time. Previously, the government prohibited non-listed Indian companies from listing internationally and mandated that companies listed on foreign markets should also list in India. Unlisted companies that have not previously issued FCCBs, ADRs/GDRs before August 31, 2005, need to have their shares listed on domestic stock exchanges either prior to or simultaneously with the issuance of FCCBs, ADRs/GDRs, or sponsoring such issues.
According to an official release, unlisted companies that issued FCCBs, ADRs or GDRs before August 31, 2005 and were not profitable would be allowed to offer new shares against existing shares held by their shareholders. These companies would be given the opportunity to meet listing requirements on domestic stock exchanges within three years of becoming profitable. This permission for non-Indian listed companies to offer sponsored issues abroad could provide an exit option for venture capital and private equity investors in such companies.
