Global Depository Receipt GDR: Meaning, Features, Example, Advantages and Disadvantages

Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. The Securities and Exchange Board of India (SEBI) published a comprehensive framework to issue Depository Receipts (DR) in October 2019. The new rules allow easier access to foreign capital through GDRs and ADRs. GDR transactions tend to have lower costs than some other mechanisms that investors use to trade in foreign securities. Citi wins Global Finance’s award for the Best Depositary Receipt Bank for Capital Raising. The bank was the leader in this category, both in terms of capital raised ($5.7 billion) and in the number of capital raisings, with 26 such programs last year.

Global depositary receipts allow a company to raise equity in multiple markets. For example, a Chinese company could create a GDR program that issues its shares through a depositary bank intermediary into the London market and the United States market. There is a higher risk due to volatility in foreign currency exchange rates. An American Depository Receipt (ADR) is a negotiable certificate issued by a US bank reflecting securities of a foreign business denominated in US dollars and trading on the US stock market. American investors can purchase ADRs to make investments in non-US corporations. The International Financial Services Centre (IFSC) in Gujarat allows Indian companies to list their global receipts to raise funds through foreign sources.

With sponsored programs, there is only one ADR, issued by the depositary bank working with the foreign company. Investors buying GDRs can benefit from the exposure to the relatively high growth that companies can achieve in developing markets compared with more developed economies. GDRs make it easier to invest in foreign companies as investors can trade them through their regular brokerage account, rather than having to exchange currency and open a foreign account. Since it is traded on a local stock exchange, investors do not need to worry about international trading policies and global laws. BNY Mellon takes the award for Best Bank for Unsponsored Depositary Receipts. The bank was the first to file on 43% of the 44 newly established unsponsored programs in 2018, more than any other depositary bank.

Where have you heard of global depository receipts?

GDRs can be issued by private placement, public offering or any other method acceptable in the relevant jurisdiction, according to the new rules. The trading process involving GDRs is regulated by the exchange on which they trade. For example, in the U.S., global depositary receipts are quoted and trade in U.S. dollars. They’re subject to the trading and settlement process and regulations of the exchange where their transactions take place.

Depositary receipt

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.

What Is a Global Depositary Receipt (GDR)?

The global award for the Best Depositary Receipt Program goes to China’s iQiyi, an online entertainment service with more than 500 million monthly active users. Sometimes referred to as the Netflix of China, iQiyi raised $2.42 billion in its IPO, the largest DR capital raising of 2018. The practice of an investment solicitor therefore is an all embracing one. He has a duty to cautiously and carefully review all ensuring agreements, paperworks and the entire exercise to ensure their compliance with the respective and applicable laws. In the wake of the Sept/11 terrorist saga in the United States and the continued threat of same nature and magnitude, enforcement of the money laundering laws of various countries has become of paramount importance. Our laws in this area are of various shapes and colours and these are copiously anchored by the MONEY LAUNDERING (PROHIBITION) ACT, CAP M18, LFN 2004, (“the Act”).

These fees in most cases are share between the issuer and the Depository Bank as the later usually concedes to what is global depository receipt such arrangement . Typically an agreement between both parties is signed for a fixed term, usually between three and ten years. These determine the monetary contribution made to the Issuer by the Depository Bank as well as the gross strength of the contract and the terms of the agreement.

Note that Global Depository Receipts are also applicable in the United Kingdom. But in the United States, it is strictly called American Depository Receipts. Theoretically, there could be several unsponsored ADRs for the same foreign company, issued by different U.S. banks.

1. GDRs give companies access to greater capital and investors the opportunity to invest in the equity of foreign companies.
2. This makes GDRs an efficient and cost-effective way to access cross-border capital.
3. The Depository Bank therefore, is the local bank in the target country of the stock exchange where the Depository Receipts are to be listed.
4. CAs, experts and businesses can get GST ready with Clear GST software & certification course.
5. The award for the Best Depositary Receipt Program in Asia goes to Pinduoduo, a Chinese e-commerce platform that allows users to participate in group-buying deals, mostly through Tencent’s WeChat app.
6. Investors buying GDRs can benefit from the exposure to the relatively high growth that companies can achieve in developing markets compared with more developed economies.

As an investor you will have heard of the trading of global depositary receipt shares from companies in emerging growth countries like China and India. Investing in GDRs is one way for investors to diversify their portfolios with exposure to international markets. Therefore, only institutional investors, which are companies or organizations that execute trades on behalf of clients, can invest in them.

1. The Act specifically provides Sec. 2 that a transfer to or from a foreign country of funds or securities of a sum exceeding ten thousand dollars ($10,000) or its equivalent shall be reported to the Central Bank of Nigeria.
2. Unlike American depositary receipts (ADRs), which allow foreign company shares to be traded on the US stock exchanges, GDRs can be traded in multiple countries.
3. During the subsistence of the depository program Depository Bank charge investors fees.
4. Shares in the Finnish technology company Nokia are traded on an exchange in Helsinki.
5. The program reopened the DR market in Slovenia, which had been inactive since the last such program was delisted in London in the early 2000s.

Although investors will be investing in a company that is in a foreign country, they can still enjoy the same corporate rights, such as being able to vote for the board of directors. The award for the Best Depositary Receipt Program in Asia goes to Pinduoduo, a Chinese e-commerce platform that allows users to participate in group-buying deals, mostly through Tencent’s WeChat app. Pinduoduo appointed Deutsche Bank as depositary for its Nasdaq-listed ADR. Pinduoduo’s IPO and follow-on offering totaling $3.32 billion was the largest transaction by an Asian issuer last year. Among the regional awards, Central Puerto, a generator and distributor of electricity in Argentina, is the winner of Best Depositary Receipt Program in the Americas.

A global depositary receipt is very similar to an American depositary receipt (ADR) except that an ADR only lists shares of a foreign company in U.S. markets. Deutsche Bank’s innovative Australian TraCR product is the winner of the Best Local Depositary Receipts award. TraCRs are unsponsored transferable custody receipts that are issued and trade in Australian dollars. They trade on the alternative Chi-X Australia market during Australian trading hours and give investors exposure to some of the largest US-listed companies. The first such company was Apple, for which a TraCr was launched in October 2018. Vast majority of the foreign investors would not access the local market with much ease as local investors would.

These included automaker NIO, e-commerce platform Pinduoduo, OneSmart International Education Group, and Bilibili, a video-sharing website. This year, for the first time, Global Finance honors those depositary banks and programs that provide the best value-added services to issuers, brokers and investors. Depositary receipts are issued in partnership with a bank acting as an intermediary. The underlying company does not necessarily have direct control over its depositary receipt shares as it controls its domestic shares. Indian companies who want to issue GDRs must get Ministry of Finance and FIPB clearance.

He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst. ADRs are categorized into sponsored and unsponsored, which are then grouped into one of three levels.