abhishreshthaa
Abhijeet S
- issue of ADRs/GDRs under the liberalised guidelines would be only against expansion of the existing capital base through issuance of fresh equity shares as underlying shares for ADRs/GDRs.
- ADR/GDR are reckoned as part of Foreign Direct Investment (FDI).
- Accordingly, such issues would need to conform to the existing FDI Policy and only in areas where FDI is permissible.
- Indian companies raising money through ADRs/GDRs through registered exchanges would henceforth be free to access the ADR/GDR markets through an automatic route without the prior approval of the Ministry of Finance, Department of Economic Affairs.
- The track record condition will not be operative for ADR/GDR issues.
- Private placement of ADRs/GDRs would also be eligible for the automatic approval provided the issue is lead managed by an Investment Banker.
- Investment Banker would be defined as an Investment Banker registered with the SEC, or under Financial Services Act in U.K., or the appropriate regulatory authority.
Mandatory Approval Requirements
- In all cases of automatic approval, the mandatory approval requirement under FDI policy, approvals such as under the Companies Act, approvals for overseas investments/business acquisition (where ADR/GDR proceeds are utilised for overseas investments) would need to be obtained by the company prior to the ADR/GDR issues.
- The issuer company would need to obtain RBI approval under the provisions FERA/FEMA prior to the overseas issue.
- Reserve Bank of India will be issuing necessary guidelines from time-to-time which have to be followed by the company issuing ADR/GDR.
End Uses of ADR/GDR
While no detailed end uses are specified, the existing bar on investments in stock markets and real estate would continue to be operative.
Issue related Expenses
- The issue related expenses (covering both fixed expenses like underwriting commissions, lead managers charges, legal expenses and other expenses) shall be subject to a ceiling of 4% in the case of GDRs and 7% in the case of listing on US Exchange.
- Issue expenses beyond the ceiling would need the approval of RBI.