Investors in 85% of GDRs issued in 2010 losing money: Crisil

Investors have lost money in 85% of the GDR issues in 2010, finds a study done by Crisil, an independent research company.

The average return on investment (difference between the offer price and market price) for GDRs issued in 2010 was a negative 52% against a negative 7% for S&P CNX 500.

GDRs issued by information technology (IT), media and consumer companies remained major underperformers. In percentage terms, Teledata Technology Solutions? GDR was the worst performer with its share price trading 93% below the offer price.

On the other hand, Rainbow Papers?s issue remained the best performer with its price trading 148% higher than the offer price.

During 2010, Indian companies raised around R5,680 crore (or $ 1.2 billion) through the GDR route with Bombay Rayon Fashions? R350 crore GDR issue in October 2010 being the largest for the year.

?Companies generally prefer the GDR route for fund raising when the global sentiment for emerging markets is strong said Tarun Bhatia, director, Capital Markets, Crisil Research. He added that during 2010, many Indian companies were able to attract foreign investors through the GDR route given buoyant equity markets and robust domestic economic growth rates.

?Further, lower disclosure norms on end use of funds make fund raising through GDRs comparatively easier for the domestic companies? he said.

As of December 2010, Indian companies accounted for about 68% of the total listed GDRs on the Luxembourg Stock Exchange.

With equity markets correcting by about 20% in 2011, the number of GDRs issued has also slowed down.

Only 12 Indian companies have raised $193 million through GDRs till date in 2011 against 34 companies that raised $ 976 million in the corresponding period in 2010.

A depository receipt (DR) represents a company?s

specific number of shares traded on the exchange of another country and are broadly classified into American Depository Receipts (ADRs), Rule 144A Depository Receipts and Global Depository Receipts (GDRs) depending on the market in which DRs are available.

Depository Receipts are privately placed and only available to QIBs (qualified institutional buyers) in the US.

On the other hand, GDRs facilitate trading in one or more markets outside the company?s home country.

Increased visibility, ability to raise more capital in foreign markets and a diversified shareholder base are the key drivers for companies to opt for the GDR route to raise capital.