Tata Consumer Products has stated that its global depository receipts (GDRs) will be delisted from the London Stock Exchange and the Luxembourg Stock Exchange.
What exactly are GDRs?
- GDRs are financial instruments that corporations utilise to raise funds from international investors.
- They are often listed and traded on international stock markets and represent a bundle of the company’s shares.
- GDRs allow enterprises to get access to global capital markets and attract foreign investment without immediately listing their shares on several stock exchanges across the world.
GDR Regulation in India
In India, GDRs can be issued by Indian companies that meet the eligibility criteria set by the SEBI.
SEBI establishes norms and regulations for corporations interested in issuing GDRs, which typically include the following:
- Listing: The company must be listed on an Indian stock exchange.
- Track Record: According to SEBI, the company must have a track record of profitability for a set period of time.
- Good Corporate Governance: The corporation must adhere to corporate governance standards and disclose important financial and non-financial data.
- Compliance with all applicable laws and regulations, including those pertaining to securities and foreign exchange, is required.
- Clearance from Regulatory Authorities: In order to issue GDRs, the company must acquire clearance from SEBI and other relevant authorities.
Need for GDR
- GDR funds Raising: GDRs allow enterprises to raise funds from international investors, allowing them to finance investments, expansion projects, acquisitions, or debt repayment.
- GDRs enable corporations to gain access to a varied spectrum of international investors, including institutional investors, hedge funds, and retail investors, thereby growing their shareholder base.
- GDRs can be a more cost-effective alternative to traditional methods of listing shares on numerous exchanges since they allow corporations to access global capital markets without the need for separate listings in different countries.
- Trading and Settlement Simplified: GDRs make trading and settlement easier for international investors by eliminating the need to understand local market restrictions and processes.
- Risk Mitigation: Because GDRs provide access to a more diverse investor base, they can help corporations mitigate risk by lowering their exposure to local market swings and volatility.
- Arbitrage possibilities: GDRs can provide investors with arbitrage possibilities by exploiting price differences between the GDRs and the underlying shares listed on the domestic stock exchange.
Benefits offered
- GDRs provide Indian enterprises with access to a bigger pool of overseas money, allowing them to diversify their funding sources outside domestic markets.
- Increased Liquidity: Listing GDRs on international exchanges gives Indian companies greater exposure and increases the liquidity of their shares by making them available to a broader variety of investors.
- Enhanced Global Visibility: GDRs assist Indian companies raise their global profile, improving visibility and drawing the attention of international investors and analysts.
- Currency Diversification: Because GDRs are frequently denominated in a currency other than the company’s native currency, they might give a chance for Indian enterprises to diversify their exposure to foreign currencies.
Source: https://www.investopedia.com/terms/g/gdr.asp