What is Global Depository Receipts?

Global Depository Receipts (GDRs):

Global Depository Receipts (GDRs) are financial instruments issued by a depository bank outside the issuer's home country. They represent ownership of a specific number of shares in a foreign company and are traded on international stock exchanges.

Key Features of GDRs:

1. Issuance: GDRs are issued by a depository bank, which holds the underlying shares of the foreign company. These shares are then deposited with a custodian bank in the issuer's home country.
2. Denomination: GDRs are denominated in a currency other than the issuer's local currency, usually in US dollars or euros. This allows foreign investors to invest in the issuer's shares without having to deal with currency exchange issues.
3. Listing: GDRs are listed on international stock exchanges, such as the London Stock Exchange or the Luxembourg Stock Exchange, making them accessible to a global investor base.
4. Dividends and Voting Rights: GDR holders are entitled to receive dividends from the underlying shares and may also have voting rights, although these are often limited compared to direct shareholders.
5. Regulation: GDR issuance is subject to regulations in both the issuer's home country and the country where they are listed. This helps ensure transparency and investor protection.
6. Trading: GDRs can be traded freely like any other security on the stock exchange where they are listed. This provides liquidity to investors who wish to buy or sell GDRs.
7. Conversion: GDRs can usually be converted into the underlying shares, either directly or through the depository bank. This allows investors to convert their GDR holdings into physical shares if they wish to do so.

Benefits of GDRs:

• Access to Global Capital Markets: GDRs allow foreign companies to raise capital from international investors, providing access to a larger pool of potential investors.
• Diversification: For investors, GDRs offer an opportunity to diversify their portfolios by investing in companies from different countries and industries.
• Liquidity: GDRs are traded on major stock exchanges, providing liquidity to investors who may want to buy or sell their holdings.

In conclusion, Global Depository Receipts are an important financial instrument that allows foreign companies to raise capital internationally and provides investors with access to a diverse range of investment opportunities.