Indian GDRs no longer make a splash

, , Depositary receipts, India, Liquidity

The ice bucket challenge has been all the rage on social media recently, but Indian GDR issuers have been taking a cold shower for quite a while longer.

Last week, I uncovered a press release on the website of the Singapore exchange that announced the compulsory delisting of Global Depositary Receipt (GDR) programmes issued by no fewer than five Indian corporates. These companies had not paid the annual listing fees for an extended period of time – despite reminders – and therefore found themselves in breach of the exchange’s listing rules. London’s LSE as well as the Luxembourg Stock Exchange have also seen in recent years a number of voluntary, rather than forced, delistings on the part of Indian issuers.

Indeed, the issuance and listing of GDRs by Indian companies, a bread-and-butter money-maker for investment banks just a decade ago, have virtually come to a complete halt. According to Dealogic, 13 GDR issues were completed by Indian issuers in 2011 for a modest, combined amount of US$213 million, falling to one deal only for a rather paltry US$8 million in 2012. No further offerings have since been recorded.


There are a number of reasons for such a drought.

A large number of international institutions can now access India’s domestic market, either as registered foreign institutional investors (FIIs) or, despite increasing restrictions, through participatory (P) notes. The advent of Qualified Institutional Placements (QIPs) in 2006 has in addition much facilitated the raising of onshore equity capital by Indian corporates.

There have also been well-recorded misuses of GDRs by both issuers and investors. For example, in 2011, the Securities and Exchange Board of India (Sebi) barred seven corporates from issuing such instruments as well as 10 investors from dealing in them. In some cases, such GDRs were issued to, and held by related parties of the promoters – with the latter sometimes even helping to finance such purchases. In others, shares underlying the GDRs were dumped to retail investors by stock market participants acting as counterparties to the FIIs, triggering significant price falls.

Restrictions associated with the issue of GDRs, which place a floor equivalent to the average of the weekly high and low of a company’s related share price during a period of time (normally over two weeks) preceding the offer, have also led to Indian corporates seeking better alternatives to fund their development.

But, most of all, what has driven Indian issuers away from the GDR market have been particularly low levels of liquidity, as investors systematically exchange their securities for the more actively traded domestic shares after just a few days or weeks of listing.

In June, I commented on this website on how the mandatory increase in the minimum free float in India, as well as the increase in the proportion of shares that may be allocated to institutional investors there, may help to generate up to US$13 billion equivalent in share placements. This, coupled with a 26% year-to-date increase in the S&P BSE SENSEX index, will likely further drive volumes on India’s domestic markets at the expense of offshore securities listed in Europe.

Conversely, market participants continue report strong US appetite for, and interest in the much more liquid Indian American Depositary Receipts (ADRs) on NASDAQ and the NYSE, on the back of Narendra Modi’s election win last May. Current investor demand widely outstrips supply, with Dealogic recording only two issues since 2011, for a total amount of US$298 million.

Punters unsuccessful in securing share allocations in Alibaba may therefore perhaps find solace if Indian DR issuers finally step out of the isolation ward – and seek New York listings.

Philippe Espinasse was a capital markets banker for almost 20 years and is now an independent consultant in Hong Kong. He is the author of “IPO: A Global Guide”. His new book, “IPO Banks: Pitch, Selection and Mandate” was published last June. 

This column was originally published on GlobalCapital.