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Depositary Receipt (DR) is an instrument used by domestic companies to raise money outside the country. Some of its examples are American Depositary Receipts (ADRs) and Global Depositary Receipts (GDR).
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Global Depositary Receipt or GDR are like ADRs except for the fact that it is listed on an exchange outside the United States and helps the issuer raise funds simultaneously in different markets like Luxembourg or London. The GDR is mostly traded on the European bourses.
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Depositary Receipt or DR help companies tap the overseas market for their equity capital needs. DRs are typically issued in markets where there is a possibility of getting better valuations than in the domestic market. Several Indian IT companies and banks have an active ADR programme.
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DRs can also be issued during cross border mergers and acquisition (M&A). Issuance of DR provides a simple means of diversifying a company’s shareholder base and accessing overseas markets and other developed global markets. Issuing DRs may increase the liquidity of the underlying shares of the issuer. It also allows Indian companies to raise capital on a scale which might prove difficult in the local market.
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