SIMILARILITIES AND BENEFITS OF ADRs AND GDRs
A GLOBAL DEPOSITORY RECEIPT is a bank certificate issued in multiple countries for shares in a foreign company. The shares of a GDR trade as domestic shares offering shares for sale globally through various banks. A GDR a financial tool that is used by private markets to raise capital that is denominated in either American Dollars or Euros. They are called EUROPEAN DEPOSITORY RECEIPTS when private markets are trying to get Euros.
Foreign investors investing in Indian companies through the purchase of American Depositary Receipts (ADRs) and Global Depository Receipts (GDRs). Depository receipts, whether ADRs or GDRs, are actually negotiable instruments denominated in U.S. dollars or another currency representing a publicly-traded issuer’s local currency equity shares. The local currency shares of an Indian company are created, for instance, are delivered to a depository bank’s domestic custodian bank, against which the depository issues a depository receipt in U.S. dollars or another currency. Each and every depository receipt can represent one or more of the underlying shares. Indian companies familiar with the issuance of these instruments, and have tapped the ADR/GDR market frequently to raise foreign capital. Since ADRs/GDRs represent the underlying shares of the issuing company, their value fluctuates along with the value of the underlying shares.
Foreign investors wishing to have their investment in an Indian company represented by a U.S. dollar-denominated instrument can purchase ADRs/GDRs of the Indian issuer.
Depository receipts (DRs) are financial instruments that representing shares of a local company are listed and traded on a stock exchange outside the country also.. DRs are issued in foreign currency, usually dollars. Issuing a DR, a specific quantity of underlying equity shares of a company are lodged with a custodian bank, which also authorizes the issue of depository receipts against the shares. Depending on the country issue and conditions of issue, the DRs can be converted into equity shares. DRs are called American Depository Receipts (ADRs) if they are listed on a stock exchange in the USA such as the New York stock exchange. If the DRs are listed on a stock exchange outside the US are called Global Depository Receipts (GDRs). The listing requirements of stock exchanges can be different in terms of size of the company, state of its finances, shareholding pattern and disclosure requirements. DRs are issued in India and listed on stock exchanges here with foreign stocks as underlying shares, these are also called Indian Depository Receipts (IDRs) The shares of a company that form the basis of an ADR/GDR/IDR issue may be existing shares i.e. shares that have already been issued by the company. The companies also issue fresh shares which form the underlying for the DR issue. The funds raised abroad have to be repatriated into India within a specified period, depending on the exchange control regulations that will be applicable. The company whose shares are traded as DRs gets a wider investor base from the international markets. Investors in international markets get to invest in shares of company that they may otherwise have been unable to do because of restrictions on foreign investor holdings. Investors get to invest in international stocks on domestic exchanges. As such Holding DRs gives investors the right to dividends and capital appreciation from the underlying shares, but not voting rights.
Global Depository Receipt (GDR) / American Depository Receipt (ADR)
Foreign investors investing in the Indian stock markets need to adhere with various regulations of the securities market regulator, the Securities and Exchange Board of India (SEBI) and the central bank, the Reserve Bank of India (RBI). Further, their investments are settled through the Indian settlement system, where receipts and payments are made in Indian rupees.
GDRs / ADRs which are issued to international investors and are listed on international stock exchanges. Every GDR / ADR representing a certain number of underlying equity shares in a company. Therefore, while deriving its value from the Indian company’s share, the international investor can buy and sell them in international exchanges without having to convert receipts and payments into Indian rupees.
Convertible Preference Shares
Preference shares that are convertible into equity shares are convertible preference shares.. Banking on the terms of issue, they are either compulsorily convertible or optionally convertible.
Differential Voting Rights (DVR) Shares
Companies who are permitted to issue shares with differential rights as to voting, dividend or otherwise. DVR is a tool for companies to attract equity capital, at the same time minimizing the dilution of promoters’ control over the companies
AS Chakravarthy NCFM Hyderabad : Stock Market Training Institute