“GDR” stands for “Global Depository Receipt.” A GDR is a financial instrument that represents an ownership interest in a foreign company’s shares. GDRs are a way for companies based in one country to raise capital from international investors. They are often used in the global capital markets to facilitate cross-border investment.
Here’s how GDRs work:
Issuance: A foreign company that wishes to access international capital markets may issue GDRs. These GDRs represent shares of the company’s stock but are traded and settled in foreign markets, typically in a currency other than the company’s domestic currency.
Depository Bank: The foreign company works with a depository bank, which holds the actual shares of the company’s stock and issues GDRs against them. These GDRs can then be traded on international stock exchanges.
Investment: International investors can purchase GDRs in the foreign company, effectively gaining exposure to the company’s performance and potential dividends. GDRs are a way for investors to invest in foreign companies without having to directly deal with the complexities of cross-border stock trading.
Dividends and Voting Rights: GDR holders may be entitled to dividends and may have some voting rights in the foreign company, although these rights can vary depending on the structure of the GDR.
GDRs are a useful tool for both companies and investors. Companies can access a broader investor base, while investors can diversify their portfolios with international assets. GDRs have been used by many well-known foreign companies to tap into global capital markets and raise funds.