DEPOSITORY RECEIPTS

Subject : Economy

Context: Markets regulator Sebi on Friday gave certain relaxations to non-resident Indians in respect of holding of depository receipts (DRs) issued by India-listed companies.

Concept:

• NRIs can now hold DRs issued by the company under the employee stock option schemes, bonus issue and rights issue, the regulator said.

Depository Receipts

• A Depository Receipt (DR) is a negotiable financial instrument issued by a company in a foreign jurisdiction. They represent certain securities like bonds, shares etc.
• DRs is an important mechanism for raising funds by tapping foreign investors who otherwise may not be able to participate in the domestic market.
• In India, any company, whether private limited or public limited or listed or unlisted are capable of issuing DRs. The issue of DRs is regulated by Ministry of Finance’s “The Depository Receipts Scheme, 2014″.
• Depending upon the location in which DRs are issued, they are called as ADRs (American Depository Receipts), IDR (Indian Depository Receipts) or in general as GDR (Global Depository Receipt).

IDR

• An Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian Securities Markets.

ADR

• A certificate issued in the United States in lieu of a foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock.
• An ADR dividend is paid in US dollars, so it provides a way for American investors to buy foreign securities without having to go abroad, and without having to switch in and out of foreign currencies.

GDR

• Any instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company.
• Generally, GDR is a collective term used to refer DRs issued in non-US jurisdictions and includes the DRs traded in London, Luxembourg, Hong Kong, Singapore.