Know about Global Depository Receipt.

GLOBAL DEPOSITORY RECEIPTS (GDRs):-

A depository receipt is basically a negotiable certificate denominated in US Dollars, that represents a non US company’s publicly traded local currency(Indian Rupees) equity shares. DRs are created when the local currency shares of an Indian company are delivered to the depository’s local custodian bank, against which the depository bank(such as the bank of New York) issues depository receipts in US Dollar. These depository receipts may trade freely in the overseas market like any other dollar dominated security, either on a foreign stock exchange or in the over-the-counter market, or among a restricted group such as Qualified Institutional buyers(QIBs).

Indian issues have taken a form of GDRs to reflect the fact that they are marketed globally, rather than in a specific country or market. Rules 144A of the Security and Exchange Commission of USA permits companies from outside USA to offer their GDRs to certain Institutional buyers. They are known as Qualified Institutional Buyers(QIBs). There are Institution in USA which in the aggregate own and invest on a discretionary basis at least US $ 100 million in eligible securities.

It has been perceived that a GDR issue has been able to fetch higher prices from international investors(evev when Indian issues were being sold at a discount to the prevailing domestic share prices) than those that a domestic public issue would have been able to extract from Indian investors.

IMPACT OF GDR ON INDIAN CAPITAL MARKET:-

Since the inception of this scheme a remarkable changes in Indian capital market has been observed as follows:-

i. Indian stock market to some extent is shifting from Bombay to Luxemberg.

ii. There is arbitrage possibility in GDRs issue.

iii. Indian stock market is no longer independence from yhe rest of the world. This puts additional strain on the investors as they now need to keep updated with world wide economic events.

iv. Indian retail investors are completely sidelined. Because of this issue they can no longer expect to make easy money on heavily discounted rights/public issues.

MARKETS OF GDR’S:-

i. GDR’S are sold primarily to institutional investors.

ii. Demand is likely to be dominated by emerging market funds.

iii. Switching by foreign institutional investors from ordinary share in to GDRs is likely.

iv. Major demand in UK, USA, South East Asia and to some extent continental Europe.

PROFILE OF GDR INVESTORS:-

The following parameters have been observed in regard to GDR Investors:-

i. Dedicated convertible investors.

ii. Equity investors who wish to add holdings on reduced risk or who require income enhancement.

iii. Fixed income investors who wish to enhance returns.

iv. Retail investors, whose money normally managed by continental Europian banks on an aggregate basis provide a significant base for Euro convertible issues.

Hence to become an International traders one should know the details of the GDR and its dealing system.

Aparna