Information technology, consumer durables and media companies were major underperformers.

Less than a week after the Securities and Exchange Board of India (Sebi) banned seven companies and some entities for manipulating share prices using global depository receipts (GDRs), a study has revealed that investors have lost money in 85 per cent of such issues abroad.

"An analysis of 40 GDRs issued by Indian companies in 2010 reveals that investors have lost money in 85 per cent, with four out of five issues giving a negative return of 35 per cent or more," said the Crisil study. As on September 15, 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 a negative 52 per cent, it added.

The underperformance of GDRs is significant when compared to the average return of a negative seven per cent by the S&P CNX 500 during the same period. Information technology, media and consumer staples companies were the major underperformers. A GDR is an instrument that is listed on an exchange outside the home country of the issuer and denotes a fixed number of a company's shares as the underlying product. Once listed, it can also be converted into equity shares of the issuing company.

Interestingly, Indian companies have been the most active GDR issuers, accounting for nearly 68 per cent of all listed GDRs on the Luxembourg Stock Exchange as of December 2010. During 2010, Indian companies, predominantly small and mid-cap ones, raised around $1.2 billion through the GDR route, according to Crisil.

Companies generally prefer the GDR route for fund raising when the global sentiment for emerging markets is strong, said Tarun Bhatia, director-capital markets, Crisil Research.

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 a little over eight per cent. Further, lower disclosure norms on end-use of funds make fund raising through GDRs easier for domestic companies, he added.

In absolute terms, according to the study, the market value of the funds mobilised through GDRs has eroded by approximately 47 per cent (difference between capital mobilised and its current market value) to $0.6 billion, with most GDRs trading 40-60 per cent below their offer price. In percentage terms, Teledata Technology Solutions' GDR is the worst performer, with its price on September 15 trading 93 per cent below the offer price.

Oher entities that have seen the price erode significantly include Ashco Niulab Industries (down 81 per cent), BAG Films and Media (down 73 per cent), Birla Power Solutions (down 74 per cent), Cox and Kings (down 25 per cent), Shree Ashtavinayak Cine Vision (down 51 per cent), Nissan Copper (down 45 per cent) and FCS Software Solutions (down 83 per cent).

On the other hand, Rainbow Papers' issue has been the best performer, with its price trading 148 per cent higher than the offer price.

Meanwhile, the number of GDRs issued in 2011 has slowed. Only 12 Indian companies have raised money, a total of $0.2 bn through GDRs during 2011, as compared to 34 companies that raised $1 bn during the corresponding period in 2010. "Volatility and weak performance of Indian equity markets in 2011 have damped investor sentiments. This, coupled with the weak performance of the past GDRs, has made them less attractive to foreign investors," says Chetan Majithia, head, Crisil Research.