Depository receipt is a moode of issuing equity share by in
Indian company in international market. It can be defined in the following way:
·
It is a negotiable instrument.
·
It represents certain fixed number of equity
shares of an Indian company.
·
It is denominated in foreign currency.
·
It is subscribed by non-resident.
·
It is traded in foreign-exchange.
TYPES OF
DEPOSITORY RECEIPTS:
·
American Depository Receipts (ADR).
·
Global depository receipts (GDR).
PURPOSE OF ISSUING
DEPOSITORY RECEIPTS:
Fundamental
reasons of a company to issue depository receipts are raising equity capital in
the international market. Moreover it has other following reasons:-
·
Diversify shareholder base into extended
geographic.
·
Increase recognition in international market.
·
Build up global image.
·
Facilitate merger & acquisition activity by
creating desirable acquisition currency.
INVESTOR CHOICE TO
INVEST IN DEPOSITORY RECEIPTS:
·
No currency risk.
·
No restrictions on trading.
·
Diversify portfolio.
·
Easy in trading and settlements.
STEP WISE PICTROIAL REPRESENTATION OF DEPOSITOR RECEIPTS:
(1)
ISSUING COMPANY (INDIAN COMPANY)
(Issue
rupee denominated Equity shares to domestic Custodian)
(2)
DOMESTIC CUSTODIAN
(Retains rupee
denominated shares and instructs overseas depository to issue depository
receipts) .
(3)
OVERSEAS DEPOSITORY
(Issue depository
receipts to foreign investor)
(4)
FOREIGN INVESTOR
(5)
Share being traded in
overseas markets in depository receipts form
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