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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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American Depositary Receipts (ADRs) is a type of stock that allows US people to invest in non- US corporations and receive dividends in US dollars. Indian enterprises who want to raise capital in the United States can use ADRs to achieve so by issuing shares of any of the American bourses. The ADRs are governed by the Securities and Exchange Commission (SEC). They trade in US dollars and clear through US settlement systems, allowing holders to avoid having to transact in a foreign currency.

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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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The method of producing a GDR is very similar to that of creating an . These shares are held by a foreign bank that provides to these companies in return for the shares. Companies can approach depository banks of various countries and make an agreement with them.

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Though both GDR and are used to raise funds from the foreign market, there is a fundamental difference between both. ADRs are traded on the US stock exchanges while GDRs are traded mostly on European Exchanges. In case of ADR, Indian companies can only trade in US markets, but in GDR, issuance companies can trade in any market other than the US. Typically, ADRs are bought by the retail investors while GDRs are bought by the institutional investors.

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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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