Depositary 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 company’s home country to
increase its visibility in the world market and to access a greater amount of investment capital in
other countries. Depositary receipts are structured to resemble typical stocks on the exchanges
that they trade so that foreigners can buy an interest in the company without worrying about
differences in currency, accounting practices, or language barriers, or be concerned about the
other risks in investing in foreign stock directly.

American depositary receipts (ADRs) were the 1st depositary receipts issued—JP Morgan issued
the 1st ADR in 1927. ADRs allowed companies domiciled outside of the United States to tap the
United States capital markets. ADRs were structured to resemble other stocks on the American
exchanges with comparable prices per share, shareholder notifications in English, and the use of
United States currency for the sale and purchase of ADRs and for dividend payments.

A 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. Most GDRs are, regardless of the
geographic market, denominated in United States dollars, although some trade in Euros or
British sterling. There are more than 900 GDR’s listed on exchanges worldwide, with more than
2,100 issuers from 80 countries.

Although ADRs were the most prevalent form of depositary receipts, the number of GDRs has
recently surpassed ADRs because of the lower expense and time savings in issuing GDRs,
especially on the London and Luxembourg stock exchanges.

GDR Advantages and Disadvantages

GDRs, like ADRs, allow investors to invest in foreign companies without worrying about
foreign trading practices, different laws, 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 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 company’s 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.

GDRs are liquid because the supply and demand can be regulated by creating or canceling GDR
shares.
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.

What is American Depository Receipt (ADR) and Global Depository

Receipt (GDR)?

This article explains what ADRs and GDRs are, and how they can be used by Non Resident Indians (NRIs)
and non-Indians for making investments in India.

India is hot these days – all major brokerages are of the opinion that India has a great long term
potential, and that investors in India would reap handsome benefits in the next 10 years.

With the current correction in the Indian stock market, the valuations have become even better.
And the logic of investing in Indian equity market has become even more compelling.

This is great for people living in India – they can invest in various mutual funds (MFs), or can
choose some great companies and invest in those. (Confused if you should invest in stocks
directly or through mutual funds? Please read “Direct investment in Stocks versus Mutual
Funds (MFs)?”)

But what about Non Resident Indians (NRIs) and foreign nationals? Considering the many
restrictions on NRIs and foreign nationals investing in India, how can they benefit from the
potential that India offers?

There are some very good proxies to investing directly in India – and ADRs and GDRs are a
great option.

What is an ADR / GDR?

ADR stands for American Depository Receipt. Similarly, GDR stands for Global Depository
Receipt. Let’s understand these better.
Every publicly traded company issues shares – and these shares are listed and traded on various
stock exchanges. Thus, companies in India issue shares which are traded on Indian stock
exchanges like BSE (The Stock Exchange, Mumbai), NSE (National Stock Exchange), etc.

These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New
York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated
Quotation).

But to list on a foreign stock exchange, the company has to comply with the policies of those
stock exchanges. Many times, the policies of these exchanges in US or Europe are much more
stringent than the policies of the exchanges in India. This deters these companies from listing on
foreign stock exchanges directly.

But many good companies get listed on these stock exchanges indirectly – using ADRs and
GDRs.

This is what happens: The company deposits a large number of its shares with a bank located in
the country where it wants to list indirectly. The bank issues receipts against these shares, each
receipt having a fixed number of shares as an underlying (Usually 2 or 4).

These receipts are then sold to the people of this foreign country (and anyone who is allowed to
buy shares in that country). These receipts are listed on the stock exchanges. They behave
exactly like regular stocks – their prices fluctuate depending on their demand and supply, and
depending on the fundamentals of the underlying company.

These receipts, which are traded like ordinary stocks, are called Depository Receipts. Each
receipt amounts to a claim on the predefined number of shares of that company. The issuing
bank acts as a depository for these shares – that is, it stores the shares on behalf of the receipt
holders.

What is the difference between ADR and GDR?

Both ADR and GDR are depository receipts, and represent a claim on the underlying shares. The
only difference is the location where they are traded.

If the depository receipt is traded in the United States of America (USA), it is called an
American Depository Receipt, or an ADR.

If the depository receipt is traded in a country other than USA, it is called a Global Depository
Receipt, or a GDR.

How can you use an ADR / GDR?

ADRs and GDRs are not for investors in India – they can invest directly in the shares of various
Indian companies.

But the ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals
wanting to invest in India. By buying these, they can invest directly in Indian companies without
going through the hassle of understanding the rules and working of the Indian financial market –
since ADRs and GDRs are traded like any other stock, NRIs and foreigners can buy these using
their regular equity trading accounts!

Which Indian companies have ADRs and / or GDRs?

Some of the best Indian companies have issued ADRs and / or GDRs. Below is a partial list.

Company ADR GDR

Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes Yes

Hindalco No Yes

ICICI Bank Yes Yes

Infosys Technologies Yes Yes

ITC No Yes

L&T No Yes

MTNL Yes Yes

Patni Computers Yes No

Ranbaxy Laboratories No Yes

Tata Motors Yes No

State Bank of India No Yes

VSNL Yes Yes

WIPRO Yes Yes

Foreign Currency Convertible Bond - FCCB

What Does Foreign Currency Convertible Bond - FCCB Mean?

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other
words, the money being raised by the issuing company is in the form of a foreign currency. A convertible
bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and
principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

Investopedia explains Foreign Currency Convertible Bond - FCCB

these types of bonds are attractive to both investors and issuers. The investors receive the safety of
guaranteed payments on the bond and are also able to take advantage of any large price appreciation in
the company's stock. (Bondholders take advantage of this appreciation by means warrants attached to
the bonds, which are activated when the price of the stock reaches a certain point.) Due to the equity
side of the bond, which adds value, the coupon payments on the bond are lower for the
company, thereby reducing its debt-financing costs.