GDR – Global Depository Receipts
GDRs are negotiable instruments issued by depositary banks that represent ownership of a specified number of a company’s shares. These receipts can be listed and traded independently from the underlying shares. With GDRs, foreign companies can trade in any country’s stock market except the US stock market. Those holding GDRs can convert them into shares by surrendering the receipts to the bank.
They are listed on Non-US stock exchanges like the London Stock Exchange. The GDR market is an institutional one and hence offers less liquidity but allows trading across a more significant number of countries.
For example, if ABC Ltd. wants to list its share in Australia, they will deposit a considerable number of shares with an Australian Bank. The bank can then issue receipts (GDRs) against these shares to investors. Each receipt represents a particular number of shares.
GDRs are comparable to ADRs except the fact that they are listed on an exchange outside the U.S. and helps the issuer to raise funds simultaneously in different markets i.e. it allows the foreign firms to trade on the exchange outside its home country.
These shares are held by a foreign bank who provides depository receipts to these companies in return for the shares. GDRs act as negotiable certificates. Therefore, they are usually traded just like shares of a company in any international market.
A single GDR can represent different amounts of shares, as per the company’s needs and objectives.
