Investors lost money in 85 per cent GDRs: Crisil

Crisil said that investors lost money in 85 per cent of the global depository receipts GDRs.

Rating agency Crisil today said that investors lost money in 85 per cent of the global depository receipts GDRs issued by Indian companies in 2010.

Of the 40 global GDRs issued by Indian companies in 2010,investors have lost money in 85 per cent of the issues,with four out of five issues giving a negative return of 35 per cent or more,Crisil said in a statement.

As on September 15,2011,the average return on investments a measurement of the difference in the offer price and the market price by all the GDRs issued in 2010 was negative 52 per cent,it said.

The under-performance is significant when compared to the average return of negative 7 per cent by Samp;P CNX 500 during the same period,it said.

GDRs are financial instrument used by private markets to raise capital denominated in either dollars or euros.

Information technology,media and consumer staples companies were the major under-performers,it said,adding,Indian companies have been the most active GDR issuers accounting for about 68 per cent of the total listed GDRs on the Luxembourg Stock Exchange as of December,2010.

During 2010,Indian companies,predominantly small and mid-cap companies,raised around Rs 5,680 crore USD 1.2 billion through the GDR route.

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In absolute terms,it said,the market value of the funds mobilised through GDRs has eroded by about 47 per cent difference between capital mobilised and its current market value to Rs 3,030 crore USD 0.6 billion,with most GDRs trading 40-60 per cent below their offer price.

In percentage terms,Teledata Technology Solutions8217; GDR is the worst performer with its price on September 15,2011,trading 93 per cent below the offer price. On the other hand,Rainbow Papers Ltd8217;s issue has been the best performer with its price trading 148 per cent higher than the offer price,it said.

However,the number of GDRs issued in 2011 has slowed down. Only 12 Indian companies have raised Rs 940 crore USD 0.2 billion through GDRs during 2011 as compared to 34 companies that raised Rs 4,510 crore USD 1.0 billion during the corresponding period in 2010.

Companies generally prefer the GDR route for fund raising when the global sentiment for emerging markets is strong. During 2010,many Indian companies were able to attract foreign investors through the GDR route given the performance of equity markets and the strong domestic growth rate of over 8 per cent,it said.

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