Rating agency Crisil today said that investors lost money in 85% 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% of the issues, with four out of five issues giving a negative return of 35% 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%, it said.
The under-performance is significant when compared to the average return of negative 7% by S&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% 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 ($1.2 billion) through the GDR route.
In absolute terms, it said, the market value of the funds mobilised through GDRs has eroded by about 47% (difference between capital mobilised and its current market value) to Rs 3,030 crore ($0.6 billion), with most GDRs trading 40-60% below their offer price.
In percentage terms, Teledata Technology Solutions' GDR is the worst performer with its price on September 15, 2011, trading 93% below the offer price. On the other hand, Rainbow Papers Ltd's issue has been the best performer with its price trading 148% 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 ($0.2 billion) through GDRs during 2011 as compared to 34 companies that raised Rs 4,510 crore ($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%, it said.
Further, lower disclosure norms on end use of funds make fund raising through GDRs comparatively easier for the domestic companies, it said.