Indian Depository Receipts (IDRs), Global Depository Receipts (GDRs) and American

Depository Receipts (ADRs):

Depository receipts (DRs) are financial instruments that represent shares of a foreign company. These

depositary receipts trade in the local market (in which it is issued) and are denominated in local

currency.

The process of issuing a depositary receipt is as follows: (i) A company or an investor delivers a specific

quantity of equity shares to a bank (ii) The bank places the security in its custodian account in the

country where the company is domiciled (iii) The bank then issues a certificate (depositary receipt)

against such shares to investors in the overseas market.

If the issuing company is the one that delivers the securities and initiates the process, it is referred as

sponsored depositary receipts and they can be listed in the exchanges of the country in which the DRs

are issues. Companies that want their DRs to be listed should apply for listing and should comply with

all the listing requirements.

On the other hand, if the shares are delivered by an investor they are referred as unsponsored

depositary receipts. Typically, unsponsored DRs are not allowed to be traded in the stock exchanges.

They can be traded only in OTC markets. They also have less regulatory requirement.

DRs may feature two-way fungibility, subject to regulatory provisions of the countries involved. This

means that shares can be bought in the local market and converted into DRs to be traded in the foreign

market. Similarly, DRs can be bought and converted into the underlying shares which are traded on

the domestic stock exchange.

Indian companies are permitted to raise foreign currency resources in the form of issue of ordinary

equity shares through depository receipts. Foreign companies are also allowed to raise equity capital

from India through IDRs.

SEBI has laid down the guidelines to be followed by companies for IDRs. These include the limit on the

money raised by a company in India, one year lock-in on the conversion of IDRs into shares, the

availability of IDRs to only resident Indian investors, etc.

Several stock exchanges around the world allow trading in depositary receipts of a foreign company.

These depository receipts can be specific to a country or it can be traded across multiple countries (as

in case of GDRs).

Some of the country specific depositary receipts include:

American Depositary Receipts (ADRs): These depositary receipts issued and traded in U.S.A that are

issued by a non-US company. ADRs are one of the most popular depositary receipts and many

companies across the world have issued ADRs. Some of the Indian companies that have issued ADR

include Infosys, Wipro, ICICI Bank and HDFC Bank. The American exchanges have allowed ADR since

the early part of 20th century and thus it is one of the most evolved markets.

Indian Depositary Receipts (IDR): DR issued and traded in the Indian market by a non-Indian company

is referred as IDR. Depositary receipts of Standard Chartered Bank are traded in the Indian stock market

in the form of IDR.

Hong Kong Depositary Receipts (HKDR): In the same lines as the above two, HKDRs refers to

depositary receipt issued by a non- Hong Kong company that are traded in the Hong Kong market.

Global Depositary Receipts (GDRs): These refer to depositary receipts that are allowed to be traded

in more than one country. Typically, GDRs are preferred to be issued in the European Union member

states as commonality of the

 regulations makes it easy for the issuing companies to comply with

regulation across the region.

The company, whose shares are traded as DRs, gets a wider investor base from the international

markets. Investors in international markets get to invest in shares of the company that they may

otherwise have been unable to do because of several restrictions or administrative issues. Investors

get to invest in international stocks through domestic exchanges with their existing brokers and local

currency. Holding DRs give investors the right to dividends and capital appreciation from the underlying

shares, but no voting rights. However, issue of voting rights to DR holders is under consideration of

SEBI at present.