Global Depository Receipts: How Indian Companies List Abroad

Every few years an Indian company says it wants a listing in London or New York, and the same question pops up in our inbox: can an Indian share really trade on a foreign exchange? Not directly. What trades abroad is a receipt, and the most common version of it is the global depository receipts structure, or GDR. This piece walks through how a GDR is built, what SEBI’s rules say an Indian company must do before issuing one, and how to work out whether a GDR is trading at a premium or a discount to the shares back home.

What global depository receipts actually are

Strip away the jargon and a GDR is a certificate. A depositary bank holds shares of a company in a custodian account, bundles them, and issues a receipt against that bundle on a foreign exchange. Investopedia’s definition describes it as a financial instrument issued by a depositary bank that represents shares in a foreign company, and notes that each receipt can represent anything from a fraction of a share to several shares.

Three pieces make it work:

• The underlying shares, which stay in the home market with a custodian.
• The depositary bank, which issues the receipts, passes on dividends and handles conversions.
• The foreign exchange, where the receipts are quoted, traded and settled under that exchange’s own rules.

Currency is the bit people forget. Investopedia points out that GDRs are nearly always denominated in US dollars, with the euro the next most common choice. So the investor abroad holds a dollar instrument whose value depends on a rupee share price. Two moving parts, not one.

GDRs are also mostly an institutional product. According to the same Investopedia page, they are typically offered to institutional investors through a private offer, because that route can use exemptions from registration under the US Securities Act of 1933.

GDR versus ADR: same idea, different market

The American depositary receipt, or ADR, is the US cousin. It works on the same principle, but it is issued by a US bank and trades in dollars on US venues. Investopedia’s ADR explainer splits ADRs into three levels:

• Level I trades over the counter, carries the lightest SEC requirements and cannot be used to raise capital.
• Level II gets an exchange listing and more visibility, but still cannot raise capital.
• Level III is a full public offering on a US exchange. It raises capital and brings full SEC reporting.

That ladder matters for Indian companies, because SEBI only lets them use the top rung. More on that below.

In Indian rules the umbrella term is simply “depository receipt”, or DR. SEBI’s framework defines a DR as a foreign-currency-denominated instrument, listed on an international exchange, issued by a foreign depository in a permissible jurisdiction against securities issued or transferred to a domestic custodian. It expressly includes the “global depository receipt” defined in Section 2(44) of the Companies Act, 2013. So for an Indian issuer, a GDR in London and an ADR in New York are both DRs under the same rulebook.

A GDR holder owns a dollar price built on a rupee price. When the rupee moves, the receipt moves, even if the share in Mumbai hasn’t budged.

The SEBI rulebook for depository receipts

The governing document is SEBI’s Framework for issue of Depository Receipts, circular SEBI/HO/MRD/DOP1/CIR/P/2019/106 dated October 10, 2019. It sits on top of Section 41 of the Companies Act, 2013, the Companies (Issue of Global Depository Receipts) Rules, 2014, the Depository Receipts Scheme, 2014 and an RBI notification of December 15, 2014. Here is what it asks for, in plain words.

Who can issue

Only a company incorporated in India and listed on a recognised Indian stock exchange. It must be compliant with the SEBI listing regulations (LODR), and neither the company nor its promoters, promoter group, directors or selling shareholders can be debarred by SEBI from the capital market. Wilful defaulters and fugitive economic offenders among the company, promoters or directors are also out.

What can sit underneath

“Permissible securities” means equity shares and debt securities that are in demat form and rank pari passu with the securities already listed in India. A company that is doing an IPO at home can line up a simultaneous DR listing, but the DR leg can only happen after the Indian exchange has given trading approval for the public offer.

Where it can list

DRs can be issued only in “permissible jurisdictions” notified by the central government and listed on international exchanges that SEBI notifies. The follow-up circular of November 28, 2019 named eight jurisdictions and their exchanges:

1. United States: NASDAQ and NYSE
2. Japan: Tokyo Stock Exchange
3. South Korea: Korea Exchange
4. United Kingdom (excluding British Overseas Territories): London Stock Exchange
5. France: Euronext Paris
6. Germany: Frankfurt Stock Exchange
7. Canada: Toronto Stock Exchange
8. International Financial Services Centre in India: India International Exchange and NSE International Exchange

That last line is interesting. GIFT City counts as a foreign venue for this purpose, which is one reason the IFSC keeps coming up in listing conversations. We covered the wider push in our post on the GIFT City and London financial corridor.

The listing also has to meet the highest standard the foreign exchange offers to overseas issuers. SEBI’s own examples are issuer-sponsored Level III ADRs on Nasdaq or the NYSE, DRs on the Main Board of the Hong Kong Stock Exchange, and GDRs admitted to the Standard Segment of the FCA’s Official List and traded on the London Stock Exchange. No quiet over-the-counter programmes.

Who can hold

A “permissible holder” cannot be a person resident in India and cannot be a Non-Resident Indian. That rule closes an obvious loop: an Indian investor can’t route money abroad just to buy a receipt on a local company.

Price floor and voting

Shares issued or transferred for DRs cannot be priced below what domestic investors would pay under the matching mode of issue, whether that’s a public offer, a preferential allotment or a QIP. Voting rights, where they exist, are exercised by the foreign depository, and only on the DR holder’s instructions.

Limits on foreign holding and public float

The total of securities issued or transferred for DRs, plus whatever non-residents already hold, cannot breach the FEMA cap on foreign holding in that company. Within that, the company has to keep meeting the minimum public shareholding rule after excluding the shares the depository holds for DRs. Indian depositories have to build a system that tracks DR holdings together with offshore derivative and FPI holdings of the same investor group, and the foreign depository cannot issue or “pre-release” receipts until the domestic custodian confirms it has received the underlying shares.

Paperwork and timelines

The company files its initial DR document with SEBI and the Indian exchange through an intermediary. SEBI tries to send comments within 7 working days; if it sends none in that time, it is taken to have none. The exchange then decides on in-principle approval within 15 working days of getting a complete application. After listing, anything the company discloses on the foreign exchange must also be filed with the Indian exchange within 24 hours.

Two ways a GDR can come into existence

The circular allows two routes, and they mean very different things for existing shareholders.

Fresh issue. The company issues new shares to the domestic custodian, and the foreign depository issues receipts against them. Money comes into the company, and existing holders are diluted, just as they would be in a QIP.

Transfer by existing holders. Here no new shares are created. Existing shareholders deposit their shares with the domestic custodian under an agreement between the company and the foreign depository, and receipts are issued against those. For the first listing done this way, SEBI makes the company give all its equity shareholders a chance to tender shares. Later rounds are allowed within limits approved by a special resolution under the GDR Rules.

A fresh-issue GDR raises money and dilutes you. A transfer-route GDR raises nothing for the company but can give existing shareholders a door to foreign buyers.

Worked example 1: is the GDR cheap or expensive?

The numbers below are hypothetical, chosen only to show the arithmetic. They are not prices of any real company or receipt.

Say one GDR represents 2 equity shares. The share closes at ₹1,500 on the NSE, and the rupee is at ₹84 to the dollar.

• Value of the underlying shares in rupees: 2 × ₹1,500 = ₹3,000.
• Dollar parity value of one GDR: ₹3,000 ÷ 84 = $35.71.

Now suppose the GDR is quoted at $36.50 in London. Divide the market price by parity: 36.50 ÷ 35.71 = 1.022. The receipt trades at roughly a 2.2% premium to the value of the shares it represents.

Why would a premium exist at all? Investopedia notes that GDRs trade in multiple markets and offer arbitrage opportunities. In principle, someone could create new receipts by depositing cheaper shares and selling the dearer receipts. In practice India’s rules slow that down. The FEMA foreign holding cap, the headroom that depositories have to publish, the bar on resident and NRI holders and the no-pre-release rule all limit how freely new receipts can be created. When headroom is tight, a premium can persist.

Worked example 2: the rupee does the damage

Same hypothetical company. The share is unchanged at ₹1,500, but the rupee weakens from 84 to 86 per dollar.

• New parity: ₹3,000 ÷ 86 = $34.88.
• Change in parity: (34.88 − 35.71) ÷ 35.71 = about −2.3%.

Nothing happened to the business. Nothing happened on Dalal Street. Yet a dollar-based GDR holder is down about 2.3% purely on the currency. This is the currency risk Investopedia flags, and it cuts both ways: a stronger rupee would lift the receipt with no help from the share.

Worked example 3: the public float check

Again, illustrative numbers only. A listed company has 100 crore shares. Promoters hold 70 crore and the public holds 30 crore. It plans a fresh issue of 5 crore shares for GDRs.

• Total shares after issue: 105 crore.
• Promoter stake: 70 ÷ 105 = 66.7%.
• Public stake, excluding the 5 crore held by the depository for the GDRs: 30 ÷ 105 = 28.6%.

SEBI’s circular says the company must still meet the minimum public shareholding requirement on that second number, the one that leaves out the depository’s shares. So the GDR shares don’t count towards public float. If you track ownership every quarter, our guide to shareholding pattern analysis shows where this kind of category shows up, and our piece on free float market capitalisation explains why index weights care about the same split.

What this means for an Indian investor

You can’t buy an Indian company’s GDR yourself; the permissible holder rule rules out residents and NRIs. But GDR news still matters to anyone holding the Indian share.

• Read the route. A fresh issue means dilution and fresh capital. A transfer route means no new money for the company, and the tender window SEBI requires for the first such listing may be open to you.
• Check the price. SEBI sets a floor tied to the domestic price for the same mode of issue, so a GDR can’t be sold to foreigners cheaper than the comparable domestic route.
• Watch foreign headroom. Receipts eat into the FEMA foreign holding limit alongside FPI holdings. A stock close to its cap has less room for both.
• Follow the disclosures. Anything filed abroad must reach the Indian exchange within 24 hours, so the exchange filings page stays your main source.

For the wider picture of how Indian listings work, from the price band to allotment, start with our guide to IPO investing in India.

The short version

A GDR is a foreign-currency receipt backed by Indian shares parked with a custodian at home. SEBI’s 2019 framework lets only Indian-incorporated listed companies use it, only on eight notified jurisdictions’ exchanges at their top listing tier, only for non-resident non-NRI holders, and never below the domestic price. For the holder abroad, its value is the share price divided by the exchange rate, times the ratio. For you, sitting in India, the real questions are dilution, foreign headroom and whether a tender window is coming your way.

Disclaimer: This article is for information and education only and is not investment advice. The share prices, exchange rates, GDR prices and shareholding numbers in the worked examples are hypothetical and illustrative, not data for any real company or security. Rules can change; check the latest SEBI circulars before acting, and consult a SEBI-registered adviser before making investment decisions.