GDRs (Global Depositary Receipts) are a type of straight equity shares, which are issued in the offshore market. These are essentially those instruments, which possess a certain number of underlying shares in the custody of depository bank. It is negotiable instrument, which are publicly traded local currency share.
It is in the form of depository or certificate issued by the overseas depository bank outside India and issued to the non- resident investors against the issue of the ordinary shares or foreign currency convertible bonds of the issuing company. In case of typical Global Depositary Receipt, it is denominated in US $ and the underlying shares are denominated in local currency of the issuer. GDRs can be converted into equity shares by cancellation of GDRs through intermediaries, if so desired by the investor and the sale of underlying share in the domestic market through the local custodian. They are treated as common equity of the issuing company and are eligible to receive dividends and noting rights from the date of the issuance. The depository receives the dividend from the co. in the local currency and distributes the same to the shareholders of the Global Depositary Receipts into dollars after converting them at the prevailing rate of exchange. The voting rights are exercised by the depository as per the agreement between the companies. These are bearer securities and trading/settlement are done through book entries through CEDEL or Euroclear.
Roles of different parties involved in launching for GDR
- The Lead Manager(s) : An investment bank which has the primary responsibility for assessing the market and successfully marketing the issue. It helps the company at all stages from preparing the documentation, making investor presentation, selection of other manager(s) and post issue support. It exercise due diligence in collecting and evaluating all possible information which may have a bearing on the Global Depositary Receipt issue.
- Other managers or subscribers to the issue : They agree to take and market parts of the issue as negotiated with the led manager.
- Depository : A bank or a financial institution, appointed by the issuing company which has certain duties and functions to be discharged vis-à-vis the GDR holders and the company. For this it receives compensation both from the company as well as the GDR holders.
- Custodian: A bank appointed by the Depository, generally in consultation with the issuing company which keeps custody of all depository property such as share certificates, dividends, right and bonus shares etc. It receives its fees from the Depository.
- Clearing Systems : EUROCLEAR (Brussels). CEDEL (LONDON) are the registrars in Europe and Depository Trust Company (DTC) are the registrars in USA who keep records of all particulars of GDRs and GDR holders.
- The Company: One, which wishes to launch GDR issue.
- The Investor: One who is interested in investing in GDRs. He pays money and receives Global Depository Receipts.
Steps involved in launching of the GDR
- Shareholders approval is required before going for issuance of Global Depositary Receipt-approval to be obtained at AGM of the company from the shareholders.
- Appointment of Lead manager (LM): without the appointment of the lead manager, the GDR issue cannot be launched at all. Lead manager is the most vital link between all concerned parties like investors, banks, Govt. agencies etc. the entire success of the issue depends on him. He is selected on the basis of his trade record in relation to marketing capacity, market research capacity, placement skills etc. LM’S duties inter alia include advising and guiding the issuer/company industry scenario, international monetary and security market, economic conditions, equity price, interest rates, redemption rules etc.
- Finalization of the issue structure: Co in consultation with LM formulates and finalizes the issue structure of the proposal GDR and arranges to obtain all approvals/permissions.
- Documentation: the various types of documents, agreements, deeds etc. are required to be executed in the issue of the GDR issue. These are complex process, which includes prospectus, depository agreement, trust deeds, underwriting agreement, voting agreement, subscription agreement etc.
- Launching, marketing, road shows: these are the next three stages in the issue of any GDR .the marketing of the issue and road shows are handled by LM. The road shows are a series of open presentations with fund managers and analyst, investors etc.