What are Global Depository Receipts (GDRs)?

About Global Depository Receipts (GDRs)?

• It is a foreign currency-denominated negotiable financial instrument issued by a depositary bank. 
• GDRs 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.
• Purpose:
  • Indian companies can only get their shares listed on foreign exchanges through Global Depository Receipts (GDR).
  • GDRs help Indian companies get foreign funds and gain access to international capital. 
  • The depository bank is the intermediary that acts as the custodian of the shares issued by the Indian company.
• 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 value of a GDR depends on the value of the underlying share.
• GDRs are issued to investors throughout the country since they can be denominated as multiple forms of freely convertible currency.
• 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.

Source: Tata Consumer Products to delist GDRs from June 23