Question

Explain the disadvantages of Global Depository Receipts (GDRs).

Answer 1

1. A GDR issue dilutes earnings.
2. Pricing of GDRs are expected to be at a discount to the local market price.
3. In India, GDR issues have an uneven track record for international investors.

The Government of India has guidelines for issuing GDRs and ADRs. These guidelines are titled "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993," dated 12.11.1993.