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Global Depository Receipts

Global Depository Receipts

Global Depository Receipts (GDRs): Global Depository Receipts are negotiable certificates with publicly traded equity of the issuer as underlying security. An issue of depository receipts would involve the issuer, issuing agent to a foreign depository.

The depository, in turn, issues Global Depository Receipts to investors evidencing their rights as shareholders.

Depository receipts are denominated in foreign currency and are listed on an international exchange such as London or Luxembourg. Global Depository Receipts enable investors to trade a dollar denominated instrument on an international stock exchange and yet have rights in foreign shares.

The principal purpose of the Global Depository Receipts is to provide international investors with local settlement.

The issuer issuing the shares has to pay dividends to the depository in the domestic currency.

The depository has to then convert the domestic currency into dollars for onward payment to receipt holders. Global Depository Receipts bear no risk of capital repayment.

Global Depository Receipts are also issued with warrants attached to them. Warrants give the investors an option to get it converted into equity at a later date. Warrants help the issuer to charge some premium on the Global Depository Receipts  sold and it also helps to increase the demand of the Global Depository Receipts issue.

The other advantage to the issuer is that it will not have to pay dividends on the warrants till the conversion option is exercised. The disadvantage to the issuer lies in delayed receipt of full proceeds from the issue and in case the conversion option is not exercised the expected proceeds will not be realised.

Global Depository Receipts are negotiable certificates with publicly traded equity of the issuer as underlying security. An issue of depository receipts would involve the issuer, issuing agent to a foreign depository.

An American Depository Receipt (ADR) is a negotiable receipt which represents one or more depository shares held by a US custodian bank, which in turn represent underlying shares of non-US issuer held by a custodian in the home country.

Global Depository Receipts

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