Companies Act Section 2(44) Global Depository Receipt

Global Depository Receipts Section 2(44)

Global Depository Receipts (GDRs) are financial instruments issued by a company to raise capital from international investors, representing ownership of shares and traded on foreign exchanges in a different currency.

Key Characteristics of GDRs:

1. Structure: 

GDRs are issued by a depository bank, which holds the underlying shares of the issuing company in custody. 

Each GDR represents a specific number of underlying shares, typically on a one-to-one basis.

2. Global Offering: 

GDRs enable companies to tap into international capital markets and diversify their investor base beyond their domestic market, thereby increasing liquidity and visibility among global investors.

3. Listing and Trading: 

GDRs are listed and traded on major international stock exchanges, such as the London Stock Exchange, Luxembourg Stock Exchange, or NASDAQ, facilitating access to a broader investor audience and providing liquidity to GDR holders.

4. Currency Denomination: 

GDRs are denominated in a currency other than the issuer's domestic currency (e.g., US dollars or euros), allowing international investors to invest without exposure to fluctuations in the issuer's local currency.

5. Regulatory Compliance: 

Issuance of GDRs is subject to regulatory approvals and compliance with securities laws and regulations in the jurisdiction where the GDRs are listed and traded, as well as any requirements imposed by regulatory authorities in the issuer’s home country.

Benefits of GDRs:

1. Capital Raising: 

GDRs provide companies with access to a larger pool of global investors, enabling efficient capital raising for expansion, acquisitions, or other strategic initiatives.

2. Diversification: 

Companies can diversify their funding sources and reduce dependency on domestic capital markets, particularly beneficial during economic fluctuations or limited domestic investor interest.

3. Enhanced Visibility: 

Listing GDRs on international exchanges enhances the company's visibility and credibility in global markets, attracting institutional investors and improving market valuation.

Regulatory Framework:

1. Companies Act, 2013: 

While the Companies Act primarily governs the incorporation, management, and administration of companies in India, the issuance and listing of GDRs by Indian companies are subject to regulatory oversight by the Securities and Exchange Board of India (SEBI) and compliance with applicable provisions under Indian corporate laws.

2. SEBI Regulations: 

SEBI regulates the issuance, listing, and trading of GDRs by Indian companies through guidelines and regulations aimed at protecting investor interests, ensuring transparency, and maintaining market integrity.