Explain Global Depository Receipt with an Example

Global Depositary Receipt is a certificate that is collecting fame in the stock market and becoming popular among the investor to put their hands in the global stock market these days. A global depository receipt is a depository receipt sold outside the United States and outside the home country of the issuing company. In GDR, an overseas depository bank i.e. bank outside the domestic territory of the company issues shares of the company to residents outside the domestic territory. These shares are in the form of depository receipt or certificate created by overseas the depository bank. Now, this will be more understandable with an example- XYZ company situated in India wants to raise capital from the USA then the Indian company will issue their shares in the foreign company and an overseas depository bank will issue GDR to the foreign investor investing in the Indian company.  The instrument which is issued by the overseas depository bank is Global Depository Receipt.

The Global Depository Receipt Mechanism - Procedure

• The Domestic Company enters in an agreement with the overseas depository bank to issue of GDR.
• The overseas bank after it enters into the custodian agreement with the domestic custodian of such company
• The domestic custodian holds the equity shares of the company.
• On the instruction of the domestic custodian, the overseas depository bank issues share to foreign investors

The whole process is carried out under the strict guidelines of both the countries. Every Indian company who intends to issue GDR needs depository participants for entering into the global market. Hence, the GDR is denominated in U.S Dollars. 

Conclusion

Global Depository Receipt is now one of the pillars of finance or stock market today’s world. With the globalization, every company is expanding its wing in the limitless sky and GDR helps in making this dream possible for such companies to tap internationally for growth and development.