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GLOBAL DEPOSITORY RECIEPTS

DEPOSITORY RECIEPTS
Depository receipts (DRs) are certificates that represent an ownership interest in the ordinary shares of stock of a company, but that are marketed outside of the companys home country to increase its visibility in the world market and to access a greater amount of investment capital in other countries. American depositary receipts (ADRs) were the 1st depositary receipts issuedJP Morgan issued the 1st ADR in 1927. ADRs allowed companies domiciled outside of the United States to tap the United States capital markets.

GLOBAL DEPOSITORY RECIEPTS


A global depositary receipt (GDR) is similar to an ADR, but is a depositary receipt sold outside of the United States and outside of the Home country of the issuing company. GDRs a regardless of the geographic market, denominated in United States dollars, although some trade in Euros or British sterling. There are more than 900 GDRs listed on exchanges worldwide, with more than 2,100 issuers from 80 countries some country of the issuing company.

Global Depository Receipt (GDR) is a sort of bank certificate that is issued in more than one country for shares in foreign companies. It can be circulated worldwide in the capital markets. GDR's are issued by banks. The bank purchases shares of foreign companies and deposit it on the accounts. . Thus facilitation of the trade of share is the main objective of GDR.

Indian companies can raise equity capital in the international market by issuing the Global Depository Receipt The requirement for issuing of GDR is that the company applying should have consistent track record for good performance . For infrastructure projects such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads this condition would be however relaxed.

PROCESS OF ISSUING GDRs

1)To find the Depository bank


Depository bank has only right to issue the GDRs. So, it is necessary to find depository bank in USA and other European countries. 2)Issue the Shares to Depository bank Shares can not issued to foreign investors. But shares are issued to depository bank and depository bank will accept the shares of Indian companies as the custodian of foreign investors. 3)Deposit the fees For issuing GDRs, either investors or Company has to deposit the fees for issuing the certificate named global depository receipt.

4)Issue of GDRs and Record


Depository bank has right to issue one GDR certificate for 2 to 10 shares. The issue of GDRs is to those investors who will pay the amount of shares of Indian companies. After this, it will be assumed that USA or other foreign countries' investors have acquired the shares of Indian companies. Indian company gets money of shares through depository banks. On the other side, foreign investors' name is registered and they will get dividend through this bank in USA Dollar. Not only Indian companies but many other developing countries' companies are using same procedure for getting fund through GDRs. After issuing GDRs, these shares can deal in any foreign stock exchange and GDRs will be one of the security type in stock exchange list of stocks.

The Global Depositary Receipt as a Financial Instrument


A GDR is issued and administered by a depositary bank for the corporate issuer. The depositary bank is usually located, or has branches, in the countries in which the GDR will be traded. A GDR is based on a Deposit Agreement between the depositary bank and the corporate issuer, and specifies the duties and rights of each party, both to the other party and to the investors. A separate custodian bank holds the company shares that underlie the GDR. The depositary bank buys the company shares and deposits the shares in the custodian bank, then issues the GDRs representing an ownership interest in the shares. The DR shares actually bought or sold are called depositary shares.

The custodian bank is located in the home country of the issuer and holds the underlying corporate shares of the GDR for safekeeping. The custodian bank is generally selected by the depositary bank rather than the issuer, and collects and remits dividends and forwards notices received from the issuer to the depositary bank, which then sends them to the GDR holders. The custodian bank also increases or decreases the number of company shares held per instructions from the depositary bank. The voting provisions in most deposit agreements stipulate that the depositary bank will vote the shares of a GDR holder according to his instructions; otherwise, without instructions, the depositary bank will not vote the shares

GDR Advantages and Disadvantages


GDRs are liquid because the supply and demand can be regulated by creating or canceling GDR shares. GDRs, like ADRs, allow investors to invest in foreign companies without worrying about foreign trading practices, different laws, accounting rules, or cross-border transactions. GDRs offer most of the same corporate rights, especially voting rights, to the holders of GDRs that investors of the underlying securities enjoy. Other benefits include easier trading, the payment of dividends in the GDR currency, which is usually the United States dollar (USD), and corporate notifications, such as shareholders meetings and rights offerings, are in English. Another major benefit to GDRs is that institutional investors can buy them, even when they may be restricted by law or investment objective from buying shares of foreign companies.

GDRs do, however, have foreign exchange risk if the currency of the issuer is different from the currency of the GDR, which is usually USD. The main benefit to GDR issuance to the company is increased visibility in the target markets, which usually garners increased research coverage in the new markets; a larger and more diverse shareholder base; and the ability to raise more capital in international markets GDRs also overcome limits on restrictions on foreign ownership or the movement of capital that may be imposed by the country of the corporate issuer, avoids risky settlement procedures, and eliminates local or transfer taxes that would otherwise be due if the companys shares were bought or sold directly. There are also no foreign custody fees, which can range from 10 to 35 basis points per year for foreign stock bought directly

GDR MARKET
Depositary receipts can be created /canceled depending on supply and demand When shares are created ,more corporate stock of the issuer is purchased and placed in custodian bank in the a/c of depositary bank When shares are canceled the investor turns in the shares to the depositary bank , then cancels the GDR & instruct the custodian bank to transfer the shares to the GDR investors

Price of GDR primarly depends on its DR ratio DR RATIO =no. of GDR/underlying shares 1 GDR may represent an ownership interest in many shares of corporate stock or fractional shares Most GDR are priced so that they are competitive with shares of like company trading on the same exchange as the GDRs Typically, GDR price range from $7-$20

If the GDR price moves too far from the optimum range, more GDRs will be either created or canceled to bring the GDR price back within the optimum range determined by the depositary bank Most of the factors governing GDR prices are the same that affects stocks currently the stock exchange trading GDRs are London stock exchange Luxembourg stock exchange NASDAQ Dubai Singapore stock exchange Hong kong

THANKYOU
PRESENTED BY: RITU SRIVASTAVA SWATI NEGI SWATI DALAL SWATI SABHARWAL VANITA

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