A DR is a type of negotiable (transferable) financial security traded on a local stock exchange but represents a security, usually in the form of equity, issued by a foreign, publicly-listed company.

The DR, which is a physical certificate, allows investors to hold shares in equity of other countries.

DRs are created when a foreign company wishes to list its securities on another country’s stock exchange.

Many times, the policies of Stock Exchanges are much more stringent, deters these companies from listing on foreign stock exchanges directly.

But Companies get listed on these stock exchanges indirectly – using DRs like ADRs/ GDRs/IDRs.

Before creating DRs, the shares of the foreign company, which the DRs represent, are delivered and deposited with the custodian bank located in the country where it wants to list indirectly.

The bank issues receipts against these shares, each receipt having a fixed number of shares as an underlying (Usually 2 or 4).

These DRs are then sold to the people of this foreign country.

These DRs are listed on the stock exchanges.

They behave exactly like regular stocks – their prices fluctuate depending on their demand and supply, and depending on the fundamentals of the underlying company.

The issuing bank acts as a depository for these shares – that is, it stores the shares on behalf of the receipt holders.

One of the most common types of DRs is the American depository receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s.

Since then, DRs have spread to other parts of the globe in the form of global depository receipts (GDRs).

The other most common type of DRs are European DRs and International DRs.

ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange.

GDRs are commonly listed on European stock exchanges such as the London Stock Exchange.

Both ADRs and GDRs are usually denominated in US dollars, but can also be denominated in Euros.

Company ADRs GDRs

Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes Yes

Hindalco No Yes

ICICI Bank Yes YesInfosys

Technologies Yes Yes

ITC No Yes

L&T No Yes

Company ADRs GDRsMTNL Yes Yes

Patni Computers Yes NoRanbaxy

Laboratories No YesTata Motors Yes No

State Bank of India No YesVSNL Yes Yes

WIPRO Yes Yes

IDRs are transferable securities to be listed on Indian stock exchanges in the form of depository receipts.

Created by a Domestic Depository in India against the underlying equity shares of the issuing company which is incorporated outside India.

The Securities and Exchange Board of India (SEBI), has introduced guidelines for foreign companies to raise capital here by issuing Indian depository receipts (IDRs).

It has set a minimum size of the IDR float at Rs 50 crore and the minimum investment limit at Rs 2 lakh per investor.

GDRs and ADRs are amongst the most common DRs.

When the depository bank creating the depository receipt is in the US, the instruments are known as ADRs.

Similarly, other depository receipts, based on the

location of the depository bank creating them, have come into existence, such as the GDR, the European Depository Receipts, International Depository Receipts & Indian Depository Receipts.

What are the benefits of issuing IDRs to companies?

IDRs lead to increased access to capital.

Are a means of increasing global visibility and trade,

Allow increased liquidity and an international shareholder base.

Any foreign company listed in its home country and satisfying the eligibility criteria can issue IDRs.

Typically, companies with significant business in India, or an India focus, may find the IDR route advantageous.

Similarly, the foreign entities of Indian

companies may find it easier to raise money through IDRs for their business requirements abroad.