DMPQ-Critically differentiate between American depository receipts (ADR) and Global depository receipts(GDR).

ADR and GDR are route used by Indian corporate sector used for foreign direct investment.In the absence of convertibility, Indian companies cannot access the global capital market by issuance of shares just as they can be in the domestic market. To enable companies to access global markets, companies can issue shares, but instead of selling in the overseas market directly can off-load the shares to an international depository.

This depository on the strength of underlying shares held by it in the capacity of a custodian, would issue depository receipts and sold, just like shares in the overseas market. These receipts are akin to a share, have similar features but are not shares as it does not confer voting rights to the holder of these receipts. They can be listed and traded at the global stock markets just like the shares. Such receipt issued in the US is known as ADRs and elsewhere as GDRs.

Most of the reputed Indian companies are enjoying listing at the global stock markets through the ADR route. This mechanism also allows domestic companies to test international markets for their inherent strengths, competitiveness and global acceptability.

All ADRs and GDRs offering are not on the automatic route and require prior approval of Ministry of Finance, Government of India.

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