What are Global Depository Receipts (GDRs)?

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What are Global Depository Receipts (GDRs)? Blog Image

Overview:

Tata Consumer Products recently said that it will delist its global depository receipts (GDRs) from the London Stock Exchange and Luxembourg Stock Exchange.

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