American Depositary Receipt | Global Depository Receipts Features
ADR ( American Depository Receipt )
It represents ownership in the shares of a non-US company and trades in the American stock markets. ADRs enable American investors to buy shares in foreign companies without any issue of cross-border and cross-currency transactions.
ADRs carry prices in the American dollar, pay dividends in the same currency, and can be traded like any other share of US-based companies. Each ADR is issued by a US depository bank and can represent one share. The owner of ADR has the right to obtain the foreign stock it represents, but US investors are more interested in owning ADR as they can diversify their investments across the globe.
ADR falls within the regulatory framework of the US and requires registration of the ADRs and the underlying shares with the SEC.
Features of ADRs ( American Depository Receipt )
- ADR can be listed on American Stock Exchange.
- A single ADR can represent more than one share. One ADR can be two shares or any fraction also.
- The holder of the ADRs can get them converted into shares.
- The holders of ADR have no right to vote in the company.
Benefits of ADRs ( American Depository Receipt )
- An ADR program can make the investors interested in them. It also increases the companies’ visibility, broadens its shareholder base, and increases liquidity.
- It enables a company to tap US equity markets. The ADR offers a new avenue for raising capital but at highly competitive costs.
- ADRs can provide increased communications with shareholders in the US.
- They provide an easy way for US employees of non-US companies to invest in their companies’ employee stock purchase plans.
Global Depository Receipts ( GDR )
They are used in Global Equity offerings to international investors. It can be considered a global finance instrument that allows an investor to raise capital at the same time from two or more markets. Depositing receipts helps in cross-border trading and settlement helps to reduces transaction costs and increases the investment base among institutional investors.
GDR is a negotiable certificate that represents a company’s publicly traded equity or debt. They are created when a broker purchases the company’s shares on the domestic stock market and delivers them to the depository’s local custodian bank who instructs the depository bank to issue GDRs. They are traded on a stock exchange where they are listed and in the OTC market.
Let us understand the concept of GDR with the help of an example. Consider a European investor who wants exposure in Indian securities. He can do so in two ways. The two ways are as follows:
- The first one is to enter the Indian stock market and buy the company’s stock in one of the Indian markets. The investors get exposed to the exchange risks and other compulsory rules and regulations that are formulated for the purchase and sale of securities in the Indian markets.
- The second route is through GDRs that would give the investor ownership of the Indian Company’s stock without being subject to Indian stock market regulation.
GDRs are considered the same as selling equity in the Euromarkets.
Features of GDRs ( Global depository receipts )
- GDRs can be listed on any American and European Stock exchange
- One GDR can represent more than one share
- The holder of the GDRs can get them converted into shares
- The holder of the GDR has no right to vote in the company. However, the shareholders do have this right. The dividend on the GDRs is quite like the dividend on shares
- GDRs are in the US dollar