Global Depositary Receipt - GDR

What is a 'Global Depositary Receipt - GDR'

A global depositary receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares but are offered for sale globally through the various bank branches. A GDR is a financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros.

BREAKING DOWN 'Global Depositary Receipt - GDR'

A GDR is very similar to an American depositary receipt (ADR). GDRs are called EDRs when private markets are attempting to obtain euros.

GDRs may be traded in multiple markets, generally referred to as capital markets, as they are considered to be negotiable certificates. Capital markets are used to facilitate the trade of long-term debt instruments, primarily for the purpose of generating capital. GDR transactions in the international market tend to have lower associated costs than some other mechanisms that can be used to trade in foreign securities.

Shares Per Global Depositary Receipt

Each GDR represents a particular number of shares in a specific company. A single GDR can represent anywhere from a fraction of a share to multiple shares, depending on its design. When multiple shares are involved, the receipt value shows an amount higher than the price for a single share. Depository banks manage and distribute various GDRs and function in an international context.

Trading of Global Depositary Receipt Shares

Companies issue GDRs to attract interest by foreign investors, providing a lower-cost mechanism in which these investors can participate. These shares are traded as though they are domestic shares, but they can be purchased in an international marketplace. Often, the actual shares that are allocated within the GDR are put in the possession of a custodian bank as transactions are processed, ensuring both parties a level of protection while facilitating participation.

The purchase and sale of GDRs are managed through brokers representing the buyer, generally from the home country, and seller within the foreign market. The actual purchase of the assets are multi-staged, involving a broker in the investor's home, a broker located within the market associated with the company that has issued the shares, a bank representing the buyer and the custodian bank.

If an investor desires, GDRs can be sold through their brokers as well. They can be sold as is on the proper exchanges, or they can be converted into regular stock for the company. Additionally, they can be canceled and returned to the issuing company.

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RELATED FAQS
  1. How do Global Depository Receipts work?

    Is the GDR holder entitled for dividend? If not then what do they get in return? If a company pays div... Read Answer >>
  2. What are the benefits of global depositary receipts (GDRs) to investors?

    Discover how the issuance and use of global depositary receipts can benefit investors in a variety of ways, including greater ... Read Answer >>
  3. What are the differences between global depositary receipts (GDRs) and American depositary ...

    Discover some of the similarities and differences between global depositary receipts and American depositary receipts, and ... Read Answer >>
  4. Why would a company choose to use global depositary receipts (GDRs) for financing?

    Learn why a company might choose to utilize global depositary receipts for financing, along with the many other benefits ... Read Answer >>
  5. Does a company's American depositary share equal one share of common stock?

    American depositary shares (ADS) come into play when a foreign company wants its shares to trade on a major American exchange. ... Read Answer >>
  6. Is there a difference between ADR and ADS?

    American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges; in fact, this is how the ... Read Answer >>
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