“Global Depositary Receipts mean any instrument in the form of a depositary receipt or certificate (by whatever name it is called) created by the Overseas Depositary Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company.” A GDR issued in America is an American Depositary Receipt (ADR). Issue of equity in the form of GDR/ADR is possible only for the few top notch corporates of the country.

Among the Indian companies, Reliance Industries Limited was the first company to raise funds through a GDR issue.

Salient Features of a GDR

• These are special instruments which are created from ordinary shares to generate funds abroad
• The shares of a company are deposited with a bank which will issue GDRs and ADRs of equivalent value in a foreign currency (normally dollars)
• The holder of a GDR does not have voting rights
• The proceeds are collected in foreign currency thus enabling the issuer to utilize the same for meeting the foreign exchange component of project cost, repayment of foreign currency loans, meeting overseas commitments and for similar other purposes.
• Dividends are paid in Indian rupees due to which the foreign exchange risk or currency risk is placed totally on the investor
• It has less exchange risk as compared to foreign currency borrowings or foreign currency bonds.
• The GDRs are usually listed at the Luxembourg Stock Exchange as also traded at two other places besides the place of listing e.g. on the OTC market in London and on the private placement market in USA.
• An investor who wants to cancel his GDR may do so by advising the depositary to request the custodian to release his underlying shares and relinquishing his GDRs in lieu of shares held by the Custodian. The GDR can be canceled only after a cooling-period of 45 days. The depositary will instruct the custodian about cancellation of the GDR and to release the corresponding shares, collect the sales proceeds and remit the same abroad.
• Marketing of the GDR issue is done by the investment banks that manage the road shows, which are presentations made to potential investors.  During the road shows, an indication of the investor response is obtained. The issuer fixes the range of the issue price and finally decides on the issue price after assessing the investor response at the road shows.
• Cost of floating an ADR or GDR issue is quite high and is only justifiable if the amount of finance to be raised is quite large

Sponsored ADR is an ADR created by a non-US company working directly with a depositary bank. An unsponsored ADR is usually the one created by a bank without the participation or consent of the non-US company. Unsponsored ADR can trade only in the over-the-counter market.

Levels of ADRs

There are three levels of ADRs depending on their adherence to Generally Accepted Accounting Principes

• For a Level I ADR program the receipts issued in the US are registered with the SEC, but the underlying shares are held in the depositary bank are not registered with the SEC. They must partially adhere to Generally Accepted Accounting Principles (GAAP) used in the USA.
• Level II ADRs are those in which both the ADRs and the underlying shares (that already trade in the foreign company’s domestic market) are registered with the SEC. They must also partially adhere to the Generally Accepted Accounting Principles.
• Level III ADRs must adhere fully to the GAAP and the underlying shares held at the Depositary Bank are typically new shares not those already trading in the foreign company’s domestic currency.’

Other Equity Instruments
Equity Shares
Preference Shares
Warrants

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