Question

Explain the role of GDRs as sources of finance for Indian industries.

Answer 1

1. GDRs offer favourable equity share pricing for Indian enterprises with a track record of profitability. This significantly reduces the company's capital costs.
2. Investors in GDRs become shareholders. As a result, the corporation incurs no additional costs as the value of the Indian rupee falls. It affects the foreign investor's profitability.
3. GDR issues enhance the image of the issuing company in international markets. They also provide a mechanism for raising capital or as a vehicle for an acquisition.
4. GDR enables the issuing company to raise capital in two or more countries simultaneously and enlarge its shareholder base.
5. The sale proceeds of GDR are received in foreign currency. This enables the issuing company to pay off its foreign exchange liabilities related to project costs, foreign currency loans, etc.
6. The sale proceeds of GDR are received in foreign currency. This lets the issuing corporation pay off its foreign exchange liabilities, such as project costs and foreign currency borrowing.