Global Depository Receipts (GDRs)
A Global Depository Receipt (GDR) is a negotiable instrument issued by a depository bank in international markets - typically in Europe and generally made available to institutional investors. It evidences ownership of shares in a foreign company. GDRs are like ADRs, except that while an ADR is issued in U.S. market, the GDR is issued in any market outside the home country of the issuer.
Each GDR represents a specific number of underlying ordinary shares in the international company, on deposit with a custodian in the applicable home market. GDRs are quoted in the currency of the market in which it is issued. For example, if an Indian company issues GDRs in both UK and Japan and the UK GDRs will be quoted in GBP and the Japanese GDRs will be quoted in JPY. Generally, the GDRs are listed in markets of London, Luxembourg, Singapore, Frankfurt and Dubai.
Issue of GDRs require the support of a lot of finance professionals such as investment banks, lawyers and accountants, and most importantly depository or depository bank. The depository bank is the central pillar of a GDR issue. While the services of investment banks, lawyers and accountants are either one-time or periodic in nature, the services of the depository is continous in nature for the entier lifetime of the GDR issue. The depository bank is the only party to GDR transactions that is engaged on an end-to-end basis.
Role of various financial services providers in an GDR issue
Brokers
They make GDRs available to qualifying investors. Basically, they act as the sales agents.
Depository
They provide the following fuctions.
- Advise on GDR program structure
- Appoint local custodian
- Draft Deposit Agreement and associated GDR documentation
- Coordinate with lawyers and investment bankers to ensure that all implementation steps are completed
- Prepare and issue GDRs at closing
- Facilitate ongoing issuance and cancellation of GDRs
- Advise on investor relations strategy
Custodian
- They act as local market agent for the depository
- They receive and hold deposits of underlying ordinary shares for GDR issuance.
Issuer
- Determine financial objectives
- Appoint depository bank, lawyers investment bank and accountants
- Determine GDR program structure
- Provide financial information to accountants and investment bankers
- Develop investor relations strategy
Investment Bankers
- Lead underwriting process
- Establish syndicate of participating banks
- Advise on capital structure
- Advise on GDR program structure
- Obtain securities identification codes
- Obtain electronic depository eligibility for the GDRs
- Coordinate road show
- Price and launch GDR offering
Lawyers
- Advise on applicable securities laws and related matters
- Advise on GDR program (legal structure)
- Negotiate Deposit Agreement
- Prepare closing memorandum and documentation
- Prepare exchange listing agreements
- Assist in the drafting of the offering circular
- Prepare and deliver legal opinions
Accountants
- Prepare financial statements in accordance with relevant international accounting standards
- Review and audit offering circular financial disclosure
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