Global Depositary Receipt (GDR)

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  • Post last modified:December 30, 2023
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A Global Depositary Receipt (GDR) is a financial instrument representing shares in a foreign company. GDRs are traded on international stock exchanges and denominated in a currency different from that of the underlying shares. They provide a way for foreign companies to raise capital and gain exposure to international investors without directly listing their shares on multiple exchanges.

Here are key features of Global Depositary Receipts:

1. **Structure:**
– GDRs are created and issued by a financial institution known as a depositary bank. The depositary bank holds the actual shares of the foreign company and issues GDRs to investors. Each GDR typically represents a specific number of underlying shares.

2. **Denomination:**
– GDRs are denominated in a currency other than the currency of the company’s home country. This allows international investors to trade and invest in the company’s shares without dealing with currency conversion issues.

3. **Listing and Trading:**
– GDRs are listed on international stock exchanges, such as the London Stock Exchange (LSE) or the Luxembourg Stock Exchange. They can be bought and sold like regular stocks, making it easier for investors to access shares of foreign companies.

4. **Types of GDRs:**
– There are two main types of GDRs:
– **Sponsored GDRs:** Issued with the cooperation and involvement of the foreign company.
– **Unsponsored GDRs:** Created and issued by a depositary bank without the direct involvement or cooperation of the foreign company.

5. **Conversion:**
– GDRs can often be converted into the underlying shares, and vice versa. This allows investors to take physical possession of the shares if they choose to do so.

6. **Custodian Bank:**
– A custodian bank, typically in the home country of the depositary bank, holds the actual shares of the foreign company. The custodian ensures the safekeeping of the shares.

7. **Dividend Payments:**
– Dividends paid by the foreign company to GDR holders are distributed by the depositary bank in the currency of the GDR. The conversion to the currency of the investor may involve fees and currency exchange rates.

8. **Regulatory Compliance:**
– GDRs are subject to regulatory requirements in the countries where they are listed. Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC) or the Financial Conduct Authority (FCA) in the UK, may oversee GDR listings.

9. **Advantages for Issuing Companies:**
– Issuing GDRs provides foreign companies with access to a larger pool of international investors and increased liquidity. It also enables companies to raise capital without the need for a full-fledged listing on multiple exchanges.

10. **Advantages for Investors:**
– GDRs provide investors with the opportunity to invest in foreign companies without the complexities of dealing with multiple currencies, foreign exchanges, and different regulatory frameworks.

GDRs have been used by many companies worldwide as a means to tap into global capital markets and increase their visibility and accessibility to a broader investor base. They play a significant role in facilitating cross-border investment and international capital flows.