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Global depository receipts (GDR)
Global Depository Receipts (GDRs) are financial instruments used by companies to raise capital in international markets. A GDR is a negotiable instrument issued by a depositary bank that represents a certain number of a company’s shares. The depositary bank holds the shares of the company in the home country and issues GDRs to investors in foreign markets.
GDRs are usually denominated in US dollars or euros and trade on international stock exchanges, such as the London Stock Exchange, Luxembourg Stock Exchange, and the Singapore Stock Exchange. They are popular among companies in emerging markets that want to raise capital in international markets but face restrictions on foreign investment.
Investors who purchase GDRs do not directly own the underlying shares of the company. Instead, they own a financial instrument that represents ownership of those shares. GDRs offer investors the ability to invest in foreign companies without the need to directly purchase foreign securities or manage foreign currency transactions.
Like other financial instruments, investing in GDRs comes with risks, including currency exchange rate risk and the risk that the GDR may not accurately reflect the value of the underlying shares in the company. Investors should carefully consider these risks before investing in GDRs.
Global Depository Receipts (GDRs) may be defined as a global finance vehicle that allows an issuer to raise capital simultaneously in two or markets through a global offering. GDRs may be used in public or private markets inside or outside US. GDR, a negotiable certificate usually represents company’s traded equity/debt. The underlying shares correspond to the GDRs in a fixed ratio say 1 GDR=10 shares
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