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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Which feature distinguishes a Global Depository Receipt (GDR) issue from an External Commercial Borrowing for an Indian company?

A GDR is equity-linked, representing underlying shares, so it dilutes ownership and carries no repayment obligation, while ECB is borrowed debt requiring interest and principal repayment. The other options wrongly say GDRs are repayable, are only for residents, or that ECB lenders gain voting rights.

  1. AA GDR is an equity-linked instrument that dilutes ownership, whereas ECB is debt that must be repaidCorrect
  2. BA GDR must be repaid on maturity, whereas ECB never needs repayment
  3. CA GDR can be issued only to Indian residents
  4. DECB gives voting rights to lenders

Explanation

GDRs represent underlying equity shares, so issuing them increases the share base and dilutes existing holders, without a repayment obligation. ECB is a loan carrying interest and repayment. The other options reverse these features.

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