06 January 2014
2. Global Depository Receipt (GDR): A depository receipt is basically a negotiable certificate, denominated in a currency not native to the issuer, that represents the company's publicly - traded local currency equity shares. Most GDRs are denominated in USD, while a few are denominated in Euro and Pound Sterling. Theoretically, GDR can mean debt as well, but rarely it is used with this sense. GDRs are issued by a foreign bank upon deposit of shares in Indian currency by the Indian Company with the foreign bank’s depository. GDRs may be issued in the ratio of one GDR for each Indian share or any other suitable ratio. Upon issue of GDRs’ they are freely tradeable in foreign exchanges upon their listing or in OTC market. Alternatively, they may be issued to only QIBs (These are institutions in USA which, in the aggregate, own and invest on a discretionary basis at least US $ 100 million in eligible securities.) By virtue of GDRs Indian corporates are able to tap global markets and at times at premiums eventhough their shares were trading at discount in local markets.
4. American depository Receipts (ADR): ADR is basically a negotiable certificate denominated in US dollars that represent a non-US Company’s publicly traded local currency (INR) equity shares / securities. When such receipts are issued outside the US, but issued for trading in the US they are called ADRs. An ADR is generally created by depositing the securities of an Indian company with a custodian bank. In arrangement with the custodian bank, a depository in the US issues the ADRs. The ADR subscriber / holder in the US is entitled to trade the ADR and generally enjoy rights as owner of the underlying Indian security. ADRs with special / unique features have been developed over a period of time and the practice of issuing ADRs by Indian Companies is catching up. Only companies intending to have international recognition avail the opportunity to issue ADRs. As these are US depository receipts, they are governed by the provisions of Securities and Exchange Commission (SEC) of USA. The listing requirements in US and the US GAAP requirements are fairly severe to adhere. So, Indian companies tap the American market through private debt placement of GDRS listed in London and Luxemburg stock exchanges. Further, apart from legal impediments, ADRS are costlier than Global Depository Receipts (GDRS). Legal fees are considerably high for US listing. Registration fee in USA is also substantial. Hence, ADRs are less popular than GDRs. However, if such conditions are met ADR becomes an excellent source of capital bringing in foreign exchange. Dividends on ADRs’ are paid in USD.
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