ADRs & GDRs – Meaning, Process & Benefits

If Tata Motors wants to raise money from American investors, it cannot just sell shares on the New York Stock Exchange (NYSE) directly because of complex rules. It uses Depository Receipts.

1. Concept of Depository Receipt (DR)

A Depository Receipt is a negotiable certificate issued by a foreign bank representing shares of an Indian company.

• ADR (American DR): Issued in USA, denominated in Dollars.
• GDR (Global DR): Issued in Europe/World, denominated in Dollars or Euro.
• IDR (Indian DR): Issued in India for foreign companies (e.g., Standard Chartered IDR).

2. The Process (How it works)

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3. Comparison: ADR vs GDR

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4. Benefits to the Company

1. Access to Capital: Access to rich pockets of US/European investors.
2. Brand Image: Listing on NYSE creates global prestige.
3. Valuation: Often get better valuation than domestic market.
4. Forex: Raises funds in Foreign Currency (useful for imports).

5. Exam Notes: Writing the Answer

Question: "Distinguish between ADR and GDR." (5 Marks)

Answering Strategy:

1. Full Form: American vs Global Depository Receipt.
2. Geography: USA vs Rest of World (mainly Europe).
3. Currency: USD vs USD/Euro.
4. Stringency: SEC (Strict) vs Flexible.
5. Example: Infosys (ADR), Reliance (GDR).

Summary

• Vehicle: DRs are a vehicle to cross borders.
• Ownership: The investor owns the Receipt, the Receipt owns the Share.
• Voting Rights: DR holders usually do not have voting rights.

Quiz Time! 🎯

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