Global Depository Receipt (GDR)

What is GDR ?

A Global Depository Receipt (GDR), also known as International Depository Receipt (IDR), is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account.

GDRs represent ownership of an underlying number of shares of a foreign company and are commonly used to invest in companies from developing .

Prices of global depositary receipt are based on the values of related shares, but they are traded and settled independently of the underlying share.

Typically, 1 GDR is equal to 10 underlying shares, but any ratio can be used. It is a negotiable instrument which is denominated in some freely convertible currency.

GDRs enable a company, the issuer, to access investors in capital markets outside of its home country.

Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, The Bank of New York Mellon.

GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange, and the London Stock Exchange, where they are traded on the International Order Book (IOB).

Characteristics Of GDR

1. It is an unsecured security

2. It may be converted into number of shares

3. Interest and redemption price is public in foreign agency

4. It is listed and traded in the stock exchange

Advantages of GDR to issuing company

5. Accessibility to foreign capital markets

6. Increase in visibility of the issuing company

7. Rise in the capital because of foreign investor

Advantages of GDR to investor

Helps in diversification, hence reducing risk More transparency since competitor’s securities can be compared Prompt dividend and capital gain payments

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