The Hindu Business Line : GDR versus FDI

The scheme for issuance of GDR made by the Finance Ministry makes it clear that the mobilisation of funds through the Global Depository Receipts (GDR) route should conform to the FDI guidelines and limits. Thus where foreign direct investment (FDI) is permitted to a maximum of 51 per cent of the equity, the company should ensure that its equity partner as well as subscribers to GDR do not bring in anything more than 51 per cent of the company’s equity.

Apart from this similarity, they differ from each other in several vital respects. First, FDI comes into India whereas issuance of GDR amounts to a company going out of India to procure the funds.

Second, the FDI investment comes in bulk, as it were, inasmuch as it more often comes in the form of equity participation by a foreign collaborator who also brings to the tables his technology whereas GDR is issued to thousands of non-resident investors.

Third, trading if any in the shares offered to the party making FDI takes place in the Indian bourses whereas trading in GDR takes place in the foreign bourses.

Fourth, those making FDI are keen on participating in the management of the company whereas GDR holders are denied voting rights unless they convert their GDRs into their underlying shares.

And, lastly, hardly any trading is witnessed in the shares held by those making FDI whereas hectic trading is witnessed in the GDRs held abroad by non-residents.

S. MURLIDHARAN

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