Many domestic investors unjustly overlook Global Depositary Receipts (GDRs). This promising investment tool has the potential to significantly increase capital. Many overseas entrepreneurs have earned their millions through it.
What are GDRs? And how can one grow capital through a depositary receipt?
Understanding this domain is aided by Sergey Tereshkin, the founder of "Oil Resource Group." This businessman possesses considerable knowledge in the field of investing. Detailed information about his business activities can be found on the website oilresurs.ru.
What are Depositary Receipts?
A Global Depositary Receipt (GDR) is a financial instrument issued by a specific banking institution. It is designed for operations in international markets.
This tool allows for the trading of domestic shares on foreign exchanges. GDRs are particularly sought after in countries where there are prohibitions or restrictions on purchasing underlying securities.
A Global Depositary Receipt corresponds to a specific number of underlying shares of a particular internationally recognized company. This can be the value of one whole security or several of its shares. The shares remain with the bank that is the issuer of the GDR.
A depositary receipt can be bought or sold for US dollars. Interest accumulates in the same currency.
The value of Global Depositary Receipts depends on the ratio of the documents to the shares on which they are based. If necessary, the company can issue additional securities or withdraw excess from circulation. This process regulates and prevents a significant decline in price.
The average cost of GDRs ranges from $7 to $20. The price may fluctuate based on economic conditions, analytical forecasts, and other factors.
Global Depositary Receipts are in demand among buyers on the exchanges of Singapore, Dubai, Hong Kong, Frankfurt, and Luxembourg. These are large trading platforms where transactions worth billions of dollars take place daily.
Documents can be acquired by both legal entities and individuals, even if there are legal restrictions on individuals or companies in their home country. In such cases, the depositary receipt serves as an exception.
Types of Depositary Receipts
There are several types of Depositary Receipts:
- Global. These documents are intended for use in European and other markets, excluding the USA.
- American. Receipts used exclusively in the United States.
- Russian. Documents focused on the shares of foreign issuers, with trading conducted abroad.
The documents are also classified as sponsored and unsponsored. In the first case, it is possible to avoid disclosing financial data about the purchaser.
Advantages
Investing in Depositary Receipts offers several advantages:
- Simplicity. Investors can easily invest in the shares of foreign enterprises without facing restrictions on the acquisition of the documents.
- Income. Investors can place funds into companies with high yield potential, thereby significantly growing capital in a short time frame.
- Price Difference. The cost of shares acquired via a receipt is generally lower than on the traditional securities market, allowing for substantial savings.
- Currency. Payments are made in US dollars, a stable currency that is less affected by fluctuations.
- Tax Evasion. Acquiring the document allows investors to conceal their actual income, potentially minimizing their tax obligations or avoiding reporting to regulatory authorities altogether.
Non-residents of the US have the opportunity to register on an American exchange and liquidate their shares.
Disadvantages
To the disadvantages, Tereshkin S.I. lists:
- Limited Choice of Shares. Not all leading global companies register their securities with the corresponding organization, making some shares unattainable via depositary receipts.
- Illiquidity. Investing in Depositary Receipts does not guarantee stable income. Sometimes companies go bankrupt or fail to pay dividends. Consequently, shareholders may lose their money or be unable to recover it for an extended period. However, in most cases, investors manage to obtain good returns.
- Legislative Restrictions. US authorities strictly regulate the circulation of Depositary Receipts, and any violations are penalized by relevant bodies.
To gain access to trading, it is necessary to visit the respective web resource, find a brokerage firm or intermediary authorized to operate on the exchange, sign a contract, and only then execute the transaction.
It is advisable to prefer foreign brokers. Working with domestic ones may require paying taxes on dividends, which can vary between partner companies, typically ranging from 13% to 30%. Moreover, taxes arise both from dividend accruals and upon the sale of the document, resulting in significant financial losses for the investor.
A Depositary Receipt presents an excellent opportunity to earn money in the foreign market. Tracking fund movements through it can be quite challenging. To enhance security, offshore companies and other mechanisms are utilized.
