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(i)‡ Similar to an GDR, an ADR is a negotiable

instrument denominated in US dollars and issued
by a depository bank
‡ It represents ownership in a non-US security and
the underlying for which consists of ordinary
shares
‡ The important distinctive feature of an ADR issue
is that it carries more clout with investors
‡ Accessing the ADR market is considered beneficial
to the issuers as it normally provides a larger
investor base at a better price
‡ ADRs can be issued to retail investors in the
United States, unlike GDRs
 ‡ Accordingly, ADRs provide access to a large
number of investors
‡ Companies issuing ADRs are subject to detailed
initial and ingoing reporting, reconciliation with US
Generally Accepted Accounting Principles (GAAP)
‡ ADRs are listed in US Exchange
(ii) The issue can be listed on any one of the three
national stock exchanges, i.e. New York Stock
Exchange or NYSE, American Exchange AMEX or
NASDAQ
(iii) Offers greater liquidity and access to US investors,
as it is listed on three large exchanges
(iv) Issuer has greater visibility
(v) The US laws on disclosures are stringent. Such an
issue, therefore, has the advantage of
transparency in regard to change in ownership.
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‡ A Global Depository Receipt (GDRs) is a freely

traded negotiable instrument, issued by an
overseas depository bank which represents
ownership of a specified number of ordinary
shares of overseas companies
‡ GDRs are issued to non-resident investors against
the shares of the issuing company held with a
nominated custodian domestic bank
‡ GDRs are negotiable certificates that represent a
company¶s publicly traded equity and are
denominated in foreign currency, usually the US
dollar
‡ They are listed on an European stock exchange,
usually Luxembourg or London
‡ GDRs are issued as a fraction or multiple of the
underlying share
‡ Trading in GDRs takes place like any other
security in an exchange or over the counter and it
takes place in both Europe and USA
‡ Settlement of GDRs usually takes place on a book
entry basis through Euro-clear, Cedel or National
Depository Trust Company
‡ The price of GDRs can be redeemed at the
corresponding share price as on date of
redemption
‡ The first issue of GDR Ltd., South Korea in
December 1990.
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(i). Access to a broader and deeper market

(ii). Issuer receives money in foreign currency.
However there is no foreign exchange risk as the
securities are denominated in domestic currency
(iii). It is possible to get finer prices
(iv). The investor base is broader and more diversified
(v). Administratively simpler for corporate actions. The
issuer has to deal with the depository bank alone
instead of dealing with the multitude of investors
(vi). Issuer¶s visibility enhanced globally
(vii). Cost effective.
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(i). Convenient means to hold foreign shares and

diversify risk
(ii). Listed on European stock exchange
(iii). Local clearing and settlement procedures as
avoided
(iv). Market-making mechanism ensures continuous
liquidity ± can be exchanged for the underlying
shares
(v). Cross-border fungibility
‡ The GDR issue process involves several parties
with specific roles like global coordinators, lead
managers, depository bank, custodian bank, legal
counsel, process agents
‡ While most of the parties withdraw after the issue
process is completed, the depository bank
custodian bank have a continuing role to play
‡ There roles are :
(i). Depository Bank
(ii). Custodian Bank
(i). Depository Bank

a). Issues GDRs on behalf of an issuer, is

responsible for payment of dividends and
shareholder information
b). Service is provided free to the issuer but a
charge is collected for transfer of GDRs,
dividend payment, etc. from the investor
c). Enters into a formal depository agreement,
which is binding, on the issuer, depository
and investors.
(ii). Custodian Bank

(i). Acts as an agent of the depository bank and

is paid by the depository bank and not the
issuer
(ii). Maintain physical stocks of shares
(iii). Offloading, delivering shares to investors in
case of cancellation of GDRs is done by
custodian bank
(iv). Receiving divided converting it to US dollars
and remitting it to the depository
(v). Maintaining records.
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‡ The various aspects taken into account for pricing

of GDRs are market price of shares, price earnings
ratios, turnover, market capitalization, fundamental
analysis of company, size of issue,
prospective earnings
‡ The current price in the domestic market is treated
as the benchmark
‡ The average price of the share for the ten days
preceding to the issue is relevant
‡ Low price/earning ratios are considered to be
optimal for emerging markets
‡ A large market cap is preferred to attract investors
‡ A GDR issue is normally supported by
fundamental analysis
‡ The analysis, contains prospects for the industry to
which the unit belongs, track record of the
company, technology, market and price
competitiveness, market image, market share,
labour costs
‡ The actual size and price of the issue are finalized
after going through a book-building process, i.e.
the book-building process is used as a mechanism
for both price and foreign discovery
‡ Raising of foreign currency resources by Indian
corporates by way of GDR issue are governed by
µissue of Foreign Convertible Bonds and Ordinary
Shares through Depository Receipt Mechanism
Scheme 1993, and the provisions of Foreign
Exchange Management Act 1999 (i.e. FEMA
Notification No. 20 dated 3.5.2000 as amended
from time to time with regard to Transfer or issue
of Security by a Person Resident outside India).