Global Depositary Receipts

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.

Cera is an Investment Bank that can assist with the structuring of the finance and loans, and will work with Depositary Banks. Before GDRs can be arranged the finance terms are generally expected to be in place.