What is GDR: Investing in Cross-Border Stocks

What is GDR: Investing in Cross-Border Stocks

Introduction
The global flow of capital today operates with minimal restrictions on movement. One key instrument that has significantly enhanced the efficiency of international capital flows is the Global Depository Receipt (GDR). It is a transferable depository certificate that represents the shares of a foreign enterprise, issued into a GDR-friendly market where it can be traded internationally. This allows investors to gain exposure to foreign stocks with ease; however, the downside lies in uncertainties surrounding asset protection regulations and foreign exchange rate risks. ⁽¹⁾⁽²⁾
The GDR has been created explicitly for two targets: Companies worldwide can now raise international capital, away from the restrictions of their native markets, a field that is often the case for emerging markets like India. Investors, on the other hand, gain access to all those foreign investments without needing to understand the intricacies of a completely different regulatory environment or foreign exchange. The GDR, according to Investopedia, "makes it possible for a company to access investors in capital markets beyond the borders of its own country's borders." ⁽²⁾
For a broader extrapolation, GDRs become more than just financial instruments; they are the infrastructure of interfirm economies, upon which capital freely flows across continents.

How Do GDRs Work?
The very thought of GDRs – Global Depositary Receipts, sleek monetary instruments traded on international exchanges – gives an impression of an extremely linear process. Behind the scenes, the entire process is a complex amalgamation of legal expertise and market strategies.
It all starts with the issuance process. A company interested in tapping the foreign capital markets first deposits shares with a custodian bank back home. Those shares are held in trust, and the depository bank, usually located in a financial center such as London or New York, issues GDRs against those shares. This, as defined in Investopedia, allows companies to "access investors in capital markets beyond the borders of their own country."⁽²⁾
These instruments are traded on global platforms like the London and Luxembourg Stock Exchanges, making them accessible to investors worldwide. Most importantly, GDRs are denominated in a foreign currency, i.e., USD or EUR, making it easier for international buyers to transact and enhancing the liquidity of the instrument.⁽³⁾
Now, GDRs are not fixed certificates; they offer conversion. After a lock-in period (typically 45 days in India), investors can convert their GDRs into the underlying equity shares. ⁽¹⁾This gives investors flexibility in shifting across international and domestic holdings, depending on market conditions and strategic considerations. ⁽³⁾
In short, GDRs are the backstage pass to global investing, presenting companies a doorway to international capital and foreign equities to investors an easy-to-walk route. Their structure, trading mechanism, and conversion options make them the main pillar of modern cross-border finance.

Advantages for Investors
Global Depository Receipts (GDRs) allow investors to buy shares of foreign companies in a convenient way. They provide access to international markets, help diversify investments across countries, and are traded like regular shares, offering both liquidity and ease of use.

Diversification
First and foremost, GDR offers investors diversification. GDRs, which are shares in foreign companies, allow an investor to have access to international markets without the associated burdens of currency conversion or foreign regulation. As defined by Bajaj Broking: "GDRs allow investors to invest in the shares of foreign companies, which helps them diversify their portfolios.”⁽⁴⁾

Liquidity
Following that, there is liquidity. GDRs are traded on international stock exchanges like London and Luxembourg, acting like normal equities. An investor can buy and sell these in the same way as a normal share, and that's where this investor gets the advantage of flexibility and speed in the global markets. ⁽⁴⁾

Dividend Income
An additional benefit for GDR holders is that they earn dividends and can exercise (limited) voting rights. While the former may in fact not be quite at par with regular shareholders, GDRs, in most cases, grant them the right to receive dividends. GDRs are usually very appealing to income-seeking strategies. As stated in GeeksforGeeks, "GDR holders are eligible to receive dividends as well as participate in any corporate action such as stock splitting and merger in the Indian market just the same as shareholders of the actual shares.”⁽³⁾

Accessible
Finally, GDRs are accessible. For investors who want to invest in high-potential emerging markets-from India to Brazil to China. No more opening foreign brokerage accounts or navigating strange exchanges; all these opportunities come right to your front door.⁽³⁾

Benefits for the Company
Companies in India with global ambitions can attract international capital, gain greater visibility, and benefit from regulatory ease through the GDR route. This could be either for a fledgling tech start-up in Bangalore or an established manufacturing behemoth in Mumbai.

1)     Raising capital over the Borders
GDRs serve as a significant conduit for companies seeking entry into international capital markets. Rather than being open only to domestic investors, the companies may attract an even larger and more diverse selection of global investors, usually with deeper pockets and a greater appetite for emerging market opportunities. This enables emerging market companies to look for funds in efforts to bypass local market constraints. As FasterCapital notes, "This mechanism provides a flexible and efficient means for companies to raise capital, as it circumvents the complexities of direct foreign investment and offers investors a method to gain exposure to foreign assets without the intricacies of cross-border and multi-currency transactions.” ⁽⁵⁾

2)     Enhanced brand visibility and credibility
Listing GDRs on reputable exchanges gives a significant boost to the global profile of the Company. It signifies transparency, good governance, and ambition-all of which attract institutional investors and strategic partners. Increased visibility opens the door to investor confidence, new markets, and collaboration. ⁽³⁾

3)     Regulatory Pathways Made Simple
Regulatory ease, among others, would be one of the greatest attractions posed by the GDR. A company can issue GDRs instead of getting into the long and often very costly process of direct listing on a foreign exchange. The depository bank takes care of the demands of issuance and compliance, allowing firms to concentrate more on growth and development parameters than on legal hurdles.⁽⁵⁾

4)     Diversification of Shareholder Base
Expanding a company's shareholder base across different countries helps reduce its dependence on just one domestic market. This makes the firm less vulnerable to local economic ups and downs. When investors come from diverse regions, it brings a mix of perspectives, improves trading activity (liquidity), and can lead to more stable stock performance. In times of economic trouble at home, having international investors can help maintain confidence and act as a buffer against panic. ⁽⁴⁾

5)     Strategic Global Positioning
GDR issuance, beyond a financial transaction, means a strategic declaration of intent to go global. It places the Company on the international stage, willing to partake in cross-border mergers, acquisitions, and partnerships. In essence, GDRs allow a global footprint that, in highly competitive markets, can be the key differentiator in attracting the best talent, customers, and collaborators from across the globe. ⁽⁵⁾

Risks and Limitations
Global Depository Receipts (GDRs) offer a fascinating route for companies towards international capital markets, yet they also come along with some nuances of limitations. These considerations are essential for both investors and issuing companies to consider.

Currency Risk
Most often, GDRs are issued in a foreign currency, usually US dollars, which exposes the investor to fluctuations in foreign exchange rates. Even when the underlying asset performs perfectly, the deteriorating values of the home currencies, relative to the denomination of the GDR, erode the returns of the investors.⁽³⁾

Regulatory Complexity
The lack of a single standard for issuing GDRs adds complexity to a country’s regulatory framework. In case of Indian companies, they further need the Ministry of Finance approvals besides the provisions under Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993. These layers affect the issuance processes, slowing them down or adding compliance costs. ⁽⁶⁾

Liquidity Concerns
GDRs are traded in international markets, but their liquidity largely depends on institutional interest. As a result, retail investors may find it difficult to quickly enter or exit positions, especially in less active markets. ⁽⁷⁾

Limited Voting Rights
One of the worst drawbacks is interference with shareholder power. Most often, GDR holders don't enjoy a similar voting right as direct shareholders. The depository bank, and not the investor, becomes a shareholder in the company's records; thus, almost all strategic decision-making occurs without their input. ⁽⁶⁾

GDR Vs. ADR
The company most of the time depends on Depositary Receipts in such cases to obtain international investments without the hassle of cross-border listing. The choice about which scheme would suit the target market is made between the big two GDRs or the American Depositary Receipts.

1. Listing Market
GDRs are listed on non-U.S. exchanges, such as the London or Luxembourg Stock Exchange while ADRs are listed on U.S. exchanges such as NYSE and NASDAQ. ⁽⁸⁾

Why it matters:
GDRs reach access to Europe and the rest of the world, thereby going well with companies coming out of emerging economies on their way to internationalization. At the same time, these receipts serve companies looking for access to deep liquidity and a broad investor base within the U.S. financial system.

2. Currency Denomination
GDRs are issued in various currencies: U.S. dollars, euros, pounds, etc and ADRs are exclusively priced in U.S. dollars. ⁽⁹⁾

Why it matters:
GDRs allow flexibility for investors in all regions, while ADRs make it easier for American investors, as there is no need to deal with currency conversion and foreign exchange risk.

3. Issuer Origin
The majority of GDRs are issued by firms based in emerging economies. ADRs are issued by U.S. depositary banks and represent shares of non-U.S. companies, whether from developed or developing countries. ⁽⁸⁾

Why it matters:
GDRs constitute the means through which companies from developing economies can access global capital. The ADRs are an important strategic instrument for foreign firms in building visibility and credibility in the U.S. market.

4. Investor Base
GDRs are targeted at a global audience while ADRs are specifically designed to cater to U.S. investors. ⁽¹⁰⁾

Why it matters:
GDRs are aligned with international clearing systems like Euroclear and Clearstream, reaching investors all over the world. ADRs are governed by the SEC, making them attractive to domestic investors who prefer trading in familiar environments.

Examples of GDR
The year 2013 saw a landmark issuance of 30 million global depository receipts (GDRs) by Infosys Limited, the Indian IT giant, at the Luxembourg Stock Exchange, each representing one equity share. The price of the GDRs was $14.58, and with the issuance, the entire amount raised was worth a whopping $438 million, representing about 2.2% of the entire share capital of the company. ⁽¹¹⁾ The issue was managed by JPMorgan Chase Bank, which acted as the depository bank for managing the underlying shares and the international listing.

With this, Infosys could access a larger pool of global investors without the complexities of regulatory and logistical requirements attached to a direct foreign listing. By having a presence on a European exchange, Infosys enhanced its visibility, share liquidity, and diversification of its international investor base- three of the most important objectives for any company in an emerging market wishing to gain global significance. ⁽¹²⁾

The GDRs, having the same trading characteristics as common shares, provided foreign investors an opportunity to ride along with Infosys in its growth story while avoiding the complexities of the Indian stock market.

Regulatory Framework
When Indian companies enter the global capital market, they don’t just bring big ambitions; they also carry a heavy load of regulations.

In SEBI Guidelines:
As per the 2019 circular of SEBI, a listed Indian company has to comply with all requirements provided in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Promoters and directors must not be debarred, declared willful defaulters, or fugitive economic offenders. This makes sure that only credible players represent India on the global stage.⁽¹³⁾

FIPB: Foreign Investment Promotion Board
Before its dissolution in 2017, the Foreign Investment Promotion Board (FIPB) served as the nodal authority in India for approving specific foreign investment proposals that did not fall under the automatic route. It served as a single-window clearance system, streamlining the erstwhile FDI approvals in the country and determining its investment climate. The legacy continues, although through the Foreign Investment Facilitation Portal (FIFP), which now handles such approvals. ⁽¹⁴⁾

International Compliance:
The issuer must also comply with international standards such as IFRS (which stands for International Financial Reporting Standards) aimed at enhancing transparency and comparability in financial statements.⁽¹⁵⁾ Another relevant aspect is the FATCA (Foreign Account Tax Compliance Act), which obliges authorized persons to report foreign assets having a connection with US investors and was mainly instituted to prevent tax evasion. (16)

Together, these regulations protects investors, maintains market integrity, and builds global credibility. Without this, GDRs would amount to little more than symbolic paper; with this, however, they become instruments of trust.

Future of GDR

Blockchain & Tokenization
Instead of paper certificates, think of GDRs as digital tokens on a blockchain – secure, transparent, and instantly tradable. Tokenization of securities is gaining popularity already; they offer fractional ownership and already instantaneous settlement of ownership. The Asian Development Bank indicates that tokenization may democratize green finance by making investments aligned with environmental, social, and governance criteria much more accessible and efficient. GIFT City in India is also working on asset tokenization frameworks, which point to a move toward the digitalization of finance in the country's regulatory framework.⁽¹⁷⁾

Purpose to Profit with ESG and Sustainable Finance:
GDRs mirror shifts and trends within the global investment landscape. Companies issuing GDRs are increasingly expected to publish sustainability metrics as this movement penetrates the mainstream of ESG investments. According to the UN Global Compact, “88 per cent of investors are interested in portfolios that integrate sustainability and resilience.” ⁽¹⁸⁾Thus, GDRs could act as conduits for ESG-driven capital into companies committed to environmental and social impact.

In short, GDRs are really going to reinvent not raising capital, but standardizing capital. Blockchain innovation and ESG integration are transforming GDRs from investment instruments into catalysts for global progress.

Conclusion
Global Depository Receipts, or GDRs, are of strategic importance in connecting local markets with international capital markets. This mechanism enables companies from emerging economies to list and trade their shares on a foreign exchange, thereby enhancing the visibility and credibility of these companies and giving them access to a range of funding sources. This mechanism not only helps improve corporate governance and transparency but also increases capital flows that boost economic growth across borders.
More importantly, GDRs provide investors with access to international capital and opportunities beyond geographical boundaries, enabling participation in promising ventures outside their local markets. For issuers, they offer a relatively simpler route to tap into a wider foreign investor base. In today’s highly competitive and interconnected financial world, GDRs stand out as a dynamic instrument that seamlessly integrates and expands global finance, making it more accessible to all.

Sources:

1.      Clear Tax, Global Depository Receipt (GDR): Meaning, Features, Example, Advantages and Disadvantages, June 23, 2025

2.      Investopedia, What Is a Global Depositary Receipt (GDR)? Key Features and Examples, August 22,2025

3.      Geeks for Geeks, Global Depository Receipt(GDR): Works, Uses, Examples & Features, July 23,2025

4.      Bajaj Finserv, Global Depository Receipts (GDRs), March 17, 2025

5.      Faster Capital, Capital Raising: Capital Raising in a Globalized World: The Role of GDRs, April 7,2025

6.      Lakshmikumaran Sridharan Attorney, Voting Rights of Holders of Depository Receipts Abroad, March 19,2014

7.      Faster Capital, Market Liquidity: Market Liquidity and GDRs: Ensuring Smooth Financial Operations, April 3,2025

8.      Key Differences, Difference between ADR and GDR

9.      Geeks for Geeks, Difference between ADR and GDR, July 23,2025

10.   Plutus Education, Difference Between ADR and GDR: Roles, Types, Process & More

11.   5paisa Capital Limited, Global Depository Receipts (GDR)

12.   Angel One, Global Depository Receipts (GDR)

13.   Securities and Exchange Board of India, Circular on Framework for issue of Depository Receipts, October 10, 2019

14.   Wall Street Mojo, Full Form of FIPB, June 5, 2020

15.   International Financial Reporting Standards (IFRS)

16.   Upskill Development Institute, Global Banking Regulations: IFRS, Basel III and IV, FATCA, and MiFID II Course

17.   ADB Institute, Blockchain and Tokenized Securities: The Potential for Green Finance, February 2020

18.   United Nations Global Impact, Investing in the future: The rise of sustainable finance, July 1,2025

Disclaimer: This article is for educational purposes only and is based on publicly available sources. While efforts have been made to ensure accuracy, the content should not be considered professional advice.