What are the Advantages and Disadvantages of Global Depositary receipts ?

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  1. Nikil Mohan

    Nikil Mohan Member

    Sir, What are the Advantages and Disadvantages of Global Depositary receipts

    Thanks in advance in anticipation of your answer.
  2. Chandrashekar M

    Chandrashekar M Active Member

    GDRs, like ADRs, allow investors to invest in foreign companies without worrying about foreign trading practices, different laws, accounting rules, or cross-border transactions. GDRs offer most of the same corporate rights, especially voting rights, to the holders of GDRs that investors of the underlying securities enjoy.

    Other benefits include easier trading, the payment of dividends in the GDR currency, which is usually the United States dollar (USD), and corporate notifications, such as shareholders’ meetings andrights offerings, are in English. Another major benefit to GDRs is that institutional investors can buy them, even when they may be restricted by law or investment objective from buying shares of foreign companies.

    GDRs also overcome limits on restrictions on foreign ownership or the movement of capital that may be imposed by the country of the corporate issuer, avoids risky settlement procedures, and eliminates local or transfer taxes that would otherwise be due if the company’s shares were bought or sold directly. There are also no foreign custody fees, which can range from 10 to 35 basis points per year for foreign stock bought directly.

    GDRs are liquid because the supply and demand can be regulated by creating or canceling GDR shares.

    GDRs do, however, have foreign exchange risk if the currency of the issuer is different from the currency of the GDR, which is usually USD.

    The main benefit to GDR issuance to the company is increased visibility in the target markets, which usually garners increased research coverage in the new markets; a larger and more diverse shareholder base; and the ability to raise more capital in international markets.
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