Description
It describes on International Finance.Covers FII,FDI,ADR,GDR etc in detail.
FDIs & FIIs – Meaning and Impact ADRs, GDRs, IDRs – Advantages and Implications
Foreign Direct Investment & Foreign Institutional Investment
What is FDI ?
?
Investment made to acquire lasting interest in enterprises operating outside of the economy of the investor A foreign company can set up business operations
? ?
?
As an incorporated entity As an office of a foreign entity
Types Of FDI
By Direction
• • • • Outbound Inbound Vertical Horizontal
By Target
• Greenfield • Mergers and Acquisitions
By Motive
• Resource seeking • Market seeking • Efficiency seeking
Routes for FDI in India
Automatic Route
• No Government approval is required if the investment to be made falls within the sectoral caps specified for the listed activities
FIPB Route CCFI Route
• Investment proposals falling outside the automatic route would require prior Government approval
• Investment proposals falling outside the automatic route and having a project cost of Rs. 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (“CCFI”)
Evolution of FDI in India
2000-09
More sectors opened ; Equity caps raised in many other sectors Procedures simplified
Up to 100% under Automatic Route in all sectors except a small negative list
2000
1997
Up to 74/51/50% in 112 sectors under the Automatic Route 100% in some sectors
FDI up to 51% allowed under the Automatic route in 35 Priority sectors Allowed selectively up to 40% FDI Policy Liberalization
1991
Pre 1991
FDI Inflow in India
40000 In US$ mn 35000 30000 25000
20000
15000 10000 5000 0
Few Major M&A Deals
?
Tata Steel buys Corus Plc 12.1bn Hindalco acquired Novelis Inc 6.0bn Essar Steel acquired Algoma Steel 1.58bn Suzlon Energy Ltd acquired RE Power 1.6bn
US$
?
US$
?
US$
?
US$
Sector-wise FDI Contribution
3% 4%
3% 2%
23%
4% 6%
7% 10% 8%
Services Computer Telecomm Real Estate Construction Automobile Power Metallurgical Petroleum Chemicals
Sector wise FDI policy in India
Sector
? ? ? ?
% FDI Allowed
? ? ? ?
?
? ? ? ?
Shipping and ports Construction dev projects SEZ Hospitals Private Sector Banks Stock Exchanges Airports Roads and Highways Telecom
?
? ?
?
? ?
100% FDI 100% FDI 100% FDI 100% FDI 74% FDI 49% FDI 100% for Greenfield airports 74% (FIPB) for existing ones 100% FDI 74% (through FIPB beyond 49%)
Advantages of FDI
?
Benefits to Host Country
?
?
? ? ?
Economic Development Transfer of technologies, training Promotion of competition within local input market Contributes to government revenue through tax Creation of jobs
?
Benefits to Home Country
?
?
Inward flow of foreign earnings Better economy of scale and higher efficiency
Limitations of FDI
?
Domestic firms may suffer if they are not competitive
?
Company may lose out on its ownership to an overseas company Foreign investor is not obedient towards the economic policies of the host country
?
Initiatives to attract FDI
?
Better investment climate
?
Result-oriented bureaucracy
Market India Target services
?
?
?
Accelerate privatization efforts
What is FII?
?
An entity/fund established or incorporated outside India which proposes to make investment in securities. FII’s are those investors that indirectly invest into the companies through the stock market FIIs can invest in ? Securities in the primary and secondary markets including shares, debentures and warrants of companies
? ? ? ? ?
?
Units of schemes floated by domestic mutual funds Dated Government Securities Derivatives traded on a recognised stock exchange Commercial paper Security Receipts
Who can be an FII?
? ?
?
? ? ? ?
?
Asset Management Companies Pension Funds Mutual Funds Investment Trusts as Nominee Companies Incorporated / Institutional Portfolio Managers or their Power of Attorney holders University Funds Endowment Foundations Charitable Trusts & Charitable Societies
Eligibility Criteria
?
Should be registered with SEBI under Regulation 6 (FII), 1995 :
?
?
?
? ?
Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity Regulated by an appropriate foreign regulatory authority in the same category where registration is sought from SEBI Is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India Legally permitted to invest in securities outside the country “Fit and proper" person
Registration Procedure
Investment Procedure
Register FII / sub-accounts with RBI
Appoint a domestic custodian
Appoint a designated bank
Open a foreign currency denominated accounts and special nonresident rupee accounts
Open a trading account with a stock broker
Open a demat account with the bank/broker
START TRADE
Investment Options
?
Investment Routes
?
?
? ?
Direct entry as FII As a Sub-Account of the FII As a “Broad Based Funds” Through FII for the unregistered investors
?
Investment Methods
? ?
70:30 100% Debt
Sub Accounts and Broad Based Funds
?
Sub Account
?
Any person resident outside India, on whose behalf investments are proposed to be made in India by a FII and who is registered as a sub-account
?
Broad Based Fund
?
Fund established or incorporated outside India, which has
? ? ?
at least twenty investors with no single individual investor holding more than 49% shares or units of the fund OR Institutional Investor/ Investors (not necessary to have 20 investors) OR Institutional investor holding more than 49% of shares or units in the fund, then the institutional investor must itself be a broad based fund
Entry of Unregistered Investors
?
FII buy stocks on behalf of the overseas investors who are not registered with SEBI but are interested in taking exposure in Indian securities market. Participatory Note:
? ?
?
?
This was introduced & followed strictly in 2007 but now has been relaxed. FII to issue a Participatory Note (P-Note) to the unregistered investor on the investment amount he provides Introduced by RBI to curb money laundering
FII Caps
? ? ? ?
?
Investment by individual FIIs cannot exceed 10% of paid up capital Investment by entities registered as sub accounts of FII cannot exceed 5% of paid up capital All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company An Indian Company can raise the 24% ceiling to the sectoral cap, as applicable, by passing a resolution by its Board of Directors Sectoral caps are 24% / 49 % / 74% as prescribed by Government or RBI.
?
Investment in Government Debts (from RBI website)
? ?
Under 100% Debt Route - US$ 3.2 bn Under 70:30 Route US$ 3.2 bn Under 100% Debt Route - US$ 1.5 bn Under 70:30 Route US$ 1.5 bn
?
Investment in Corporate Debts (from RBI website)
?
?
Role of SEBI
?
Clearing under 6A (Fit and Proper Person) and 7A (Code of Conduct) Registration of FII
?
?
Approval of Domestic Custodian and Designated Bank
Monitoring of FII
?
The Reserve Bank of India monitors the ceilings on FII investments in Indian companies on a daily basis. They even publish data regarding the amount of FII inflow & Outflow.
?
Caution List When trigger limit which is 2% below the applicable limit, RBI issues notice to all concerned. Ban List Once the limit of FII reaches the overall limit, Reserve Bank puts the company under the ban list
?
FII Inflow in India
35000 In US$ mn 30000 25000 20000
15000
10000 5000 0 -5000 -10000 -15000 -20000
Advantages of FII
?
Enhanced Flow of Equity Capital Managing Uncertainty and Controlling Risks
?
?
Improving Capital Markets
Improved Corporate Governance
?
Limitations of FII
?
Management Control
?
Potential Capital Outflows
Myopic Approach Short term trading (Hedge funds)
?
?
Distinction between FDI and FII
Purpose Level of Involvement Time Frame Managerial Control Impact on Economy
ADRs, GDRs & IDRs
Few Terminologies
?
Depository Receipt
Certificates indicating ownership of foreign investors in the stocks of the home country.
?
Custodian
Responsible for safeguarding the financial assets of a firm. Settling any purchase/ sale of assets Providing regular reporting to their clients
?
Depository Bank
Issue depository receipts Purchase equivalent number of shares in the local market
American Depository Receipts
? ? ?
US dollar denominated negotiable instruments Issued in the US by a depositary bank (eg Deutsche Bank), Represent ownership in non-US securities
Unsponsored ADR
?
Properties
? ? ? ?
No involvement of foreign company whose stock underlies the ADR. Shareholder benefits and voting rights cannot be extended to holders Traded over the counter Usually issued by more than one depository bank
Issues Related To unsponsored ADR
?
?
?
Foreign private issuer is not notified of the creation of ADRs. Debut would be determined by the Depository Bank without knowing the long term strategy of issuer. SEC doesn’t permit unsponsored programmes to coexist with a sponsored one.
Sponsored ADR
? ?
Issued in consultation with Depository Bank Only one depository Bank Levels:?
?
?
? ?
ADR Programme Level1 ADR Programme Level2 ADR Programme Level3 Rule 144 ADR
Sponsored ADR Programme – Level 1
Lowest level of depository Receipt ? Easiest and Least expensive with minimal requirements with SEC ? Traded on the OTC ? Filling of an F-6 registration form but allows for exemption under 12G 3-2(b) ? Depository agreement is signed between issuer and Advantages Disadvantages depository bank
?
Issuers have full control over ADR
Relaxed SEC compliance norms Relatively cheaper to upgrade
Capital raising is not permitted
Cannot be listed on exchange Investor has less information about the issuer
Sponsored ADR Programme – Level 2
? ?
?
? ?
Issuer fills F-6 registration form and 20F form Have to follow minimum listing requirements of SEC Submit its annual report in accordance with US GAAP Depository agreement is signed between issuer and depository bank Listed on one of the three main exchanges of US
Disadvantages
Advantages
Increased liquidity and marketability of Capital raising is not permitted the ADR
Enhances the recognition of the ADR Investors can monitor the ADR More SEC compliance norms than ADR level 1 Time consuming and expensive
Sponsored ADR Programme – Level 3
? ?
?
?
Highest level of ADR Have to follow strict rules as followed by other US companies Investor can easily found information on the company Form-6, 20-F and F-1
Advantages
Disadvantages
All the advantages of ADR level 2
Capital raising is permitted
Extremely stringent SEC compliance regulations
Very expensive
Rule 144 - ADR
? ? ?
Issued to QIBs through private placement Investors can raise capital without conforming to full registration and reporting requirements Electronic Trading system for RADRs- PORTAL
Advantages
Disadvantages
Easy and inexpensive way of raising capital
Do not have to confirm to full SEC requirements
Can be sold only to QIBs
Cannot be sold to classes of shares already listed on exchange
A Few Indian ADRs
? ?
?
? ?
?
HDFC Bank Ltd ICICI Bank Ltd Infosys Technologies Ltd Videsh Sanchar Nigam Ltd Wipro Ltd Rediff.com India Ltd
Procedure
?
Pricing of ADRs
?
Not less than the higher of the following two averages: ? Average of the weekly high and low during the six months ? Average of the weekly high and low during the two weeks
?
Termination of ADRs
?
?
?
Owners are notified 30 days prior to termination Cancellation of all depository receipts Delisting from all exchanges where they trade
Global Depository Receipts
?
?
? ?
Similar to ADR except it is sold not only outside the home country but also outside the US Truly Global Programme Can be denominated in dollar, pound, euro Less expensive and time saving then ADR
ADR & GDR Norms in India
? ?
? ?
?
?
Level 1 ADR is not permitted in India Company issuing ADR/GDR can acquire shares of foreign company(core area) up to $100m or amount equivalent to 10 times exports 2 Way fungibility is permitted 100% of proceeds can be used for acquisitions of foreign companies and direct investment in JV and wholly owned subsidiaries Issue related expenses ceiling ? 4% - public issue of GDR ? 2% - private issue of GDR No end use restrictions except for investment of such funds on Real Estate and stock markets
Differences Between ADRs and GDRs
ADRs
?
GDRs
?
Trading in US share markets
?
? ?
More onerous listing procedure 8 – 10 times more expensive Public issue offering can be to retail investors
? ?
Trading in share markets in any but the home country Less onerous listing procedure Less expensive Offering only made to QIBs
?
Indian Depository Receipts
?
?
Like ADR/ GDR except that issuer is a foreign company Rupee denominated Criteria
? ? ? ? ?
?
Pre-issue capital and free reserves of at least 225 crore Market capitalization of at least 450 crore Earned profits in three of the preceding 5 years Pre issue debt-equity ratio should not be more than 2:1 Cannot be redeemed into equity shares before one year from date of issue
Procedure for issuing IDR
?
?
?
Application seeking permission from SEBI must be submitted at least 90 days prior to issue opening date Issuing company appoint overseas custodian, domestic depository, merchant banker Draft prospectus is filed with SEBI prior at least 21 days Taxation
? ? ?
?
Dividend Tax- 30% + 10% surcharge Short Term capital Gains Tax - 30% Long Term Capital Gains Tax - 20%
Benefits of IDR to stakeholders
?
Foreign Companies
? ? ?
Listed in home market can raise money through IDR Improve its brand presence through global visibility Foreign entities of Indian companies may find it easier to raise money for their operations abroad Diversify portfolio Own interest in foreign company No cap of $ 200000 foreign securities investment applicable to IDR Foreign companies without any listed subsidiary company in India can issue ESOPs Regulator Increase liquidity in capital market and more transaction revenues for regulator
?
Investors
? ? ?
?
Employees
? ? ?
Challenges For IDR
?
Stringent Eligibility Norms
?
Volatility in Indian Financial Market
No Reverse Fungibility No Mention of Voting Rights in SEBI guidelines
?
?
doc_858172627.pptx
It describes on International Finance.Covers FII,FDI,ADR,GDR etc in detail.
FDIs & FIIs – Meaning and Impact ADRs, GDRs, IDRs – Advantages and Implications
Foreign Direct Investment & Foreign Institutional Investment
What is FDI ?
?
Investment made to acquire lasting interest in enterprises operating outside of the economy of the investor A foreign company can set up business operations
? ?
?
As an incorporated entity As an office of a foreign entity
Types Of FDI
By Direction
• • • • Outbound Inbound Vertical Horizontal
By Target
• Greenfield • Mergers and Acquisitions
By Motive
• Resource seeking • Market seeking • Efficiency seeking
Routes for FDI in India
Automatic Route
• No Government approval is required if the investment to be made falls within the sectoral caps specified for the listed activities
FIPB Route CCFI Route
• Investment proposals falling outside the automatic route would require prior Government approval
• Investment proposals falling outside the automatic route and having a project cost of Rs. 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (“CCFI”)
Evolution of FDI in India
2000-09
More sectors opened ; Equity caps raised in many other sectors Procedures simplified
Up to 100% under Automatic Route in all sectors except a small negative list
2000
1997
Up to 74/51/50% in 112 sectors under the Automatic Route 100% in some sectors
FDI up to 51% allowed under the Automatic route in 35 Priority sectors Allowed selectively up to 40% FDI Policy Liberalization
1991
Pre 1991
FDI Inflow in India
40000 In US$ mn 35000 30000 25000
20000
15000 10000 5000 0
Few Major M&A Deals
?
Tata Steel buys Corus Plc 12.1bn Hindalco acquired Novelis Inc 6.0bn Essar Steel acquired Algoma Steel 1.58bn Suzlon Energy Ltd acquired RE Power 1.6bn
US$
?
US$
?
US$
?
US$
Sector-wise FDI Contribution
3% 4%
3% 2%
23%
4% 6%
7% 10% 8%
Services Computer Telecomm Real Estate Construction Automobile Power Metallurgical Petroleum Chemicals
Sector wise FDI policy in India
Sector
? ? ? ?
% FDI Allowed
? ? ? ?
?
? ? ? ?
Shipping and ports Construction dev projects SEZ Hospitals Private Sector Banks Stock Exchanges Airports Roads and Highways Telecom
?
? ?
?
? ?
100% FDI 100% FDI 100% FDI 100% FDI 74% FDI 49% FDI 100% for Greenfield airports 74% (FIPB) for existing ones 100% FDI 74% (through FIPB beyond 49%)
Advantages of FDI
?
Benefits to Host Country
?
?
? ? ?
Economic Development Transfer of technologies, training Promotion of competition within local input market Contributes to government revenue through tax Creation of jobs
?
Benefits to Home Country
?
?
Inward flow of foreign earnings Better economy of scale and higher efficiency
Limitations of FDI
?
Domestic firms may suffer if they are not competitive
?
Company may lose out on its ownership to an overseas company Foreign investor is not obedient towards the economic policies of the host country
?
Initiatives to attract FDI
?
Better investment climate
?
Result-oriented bureaucracy
Market India Target services
?
?
?
Accelerate privatization efforts
What is FII?
?
An entity/fund established or incorporated outside India which proposes to make investment in securities. FII’s are those investors that indirectly invest into the companies through the stock market FIIs can invest in ? Securities in the primary and secondary markets including shares, debentures and warrants of companies
? ? ? ? ?
?
Units of schemes floated by domestic mutual funds Dated Government Securities Derivatives traded on a recognised stock exchange Commercial paper Security Receipts
Who can be an FII?
? ?
?
? ? ? ?
?
Asset Management Companies Pension Funds Mutual Funds Investment Trusts as Nominee Companies Incorporated / Institutional Portfolio Managers or their Power of Attorney holders University Funds Endowment Foundations Charitable Trusts & Charitable Societies
Eligibility Criteria
?
Should be registered with SEBI under Regulation 6 (FII), 1995 :
?
?
?
? ?
Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity Regulated by an appropriate foreign regulatory authority in the same category where registration is sought from SEBI Is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India Legally permitted to invest in securities outside the country “Fit and proper" person
Registration Procedure
Investment Procedure
Register FII / sub-accounts with RBI
Appoint a domestic custodian
Appoint a designated bank
Open a foreign currency denominated accounts and special nonresident rupee accounts
Open a trading account with a stock broker
Open a demat account with the bank/broker
START TRADE
Investment Options
?
Investment Routes
?
?
? ?
Direct entry as FII As a Sub-Account of the FII As a “Broad Based Funds” Through FII for the unregistered investors
?
Investment Methods
? ?
70:30 100% Debt
Sub Accounts and Broad Based Funds
?
Sub Account
?
Any person resident outside India, on whose behalf investments are proposed to be made in India by a FII and who is registered as a sub-account
?
Broad Based Fund
?
Fund established or incorporated outside India, which has
? ? ?
at least twenty investors with no single individual investor holding more than 49% shares or units of the fund OR Institutional Investor/ Investors (not necessary to have 20 investors) OR Institutional investor holding more than 49% of shares or units in the fund, then the institutional investor must itself be a broad based fund
Entry of Unregistered Investors
?
FII buy stocks on behalf of the overseas investors who are not registered with SEBI but are interested in taking exposure in Indian securities market. Participatory Note:
? ?
?
?
This was introduced & followed strictly in 2007 but now has been relaxed. FII to issue a Participatory Note (P-Note) to the unregistered investor on the investment amount he provides Introduced by RBI to curb money laundering
FII Caps
? ? ? ?
?
Investment by individual FIIs cannot exceed 10% of paid up capital Investment by entities registered as sub accounts of FII cannot exceed 5% of paid up capital All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company An Indian Company can raise the 24% ceiling to the sectoral cap, as applicable, by passing a resolution by its Board of Directors Sectoral caps are 24% / 49 % / 74% as prescribed by Government or RBI.
?
Investment in Government Debts (from RBI website)
? ?
Under 100% Debt Route - US$ 3.2 bn Under 70:30 Route US$ 3.2 bn Under 100% Debt Route - US$ 1.5 bn Under 70:30 Route US$ 1.5 bn
?
Investment in Corporate Debts (from RBI website)
?
?
Role of SEBI
?
Clearing under 6A (Fit and Proper Person) and 7A (Code of Conduct) Registration of FII
?
?
Approval of Domestic Custodian and Designated Bank
Monitoring of FII
?
The Reserve Bank of India monitors the ceilings on FII investments in Indian companies on a daily basis. They even publish data regarding the amount of FII inflow & Outflow.
?
Caution List When trigger limit which is 2% below the applicable limit, RBI issues notice to all concerned. Ban List Once the limit of FII reaches the overall limit, Reserve Bank puts the company under the ban list
?
FII Inflow in India
35000 In US$ mn 30000 25000 20000
15000
10000 5000 0 -5000 -10000 -15000 -20000
Advantages of FII
?
Enhanced Flow of Equity Capital Managing Uncertainty and Controlling Risks
?
?
Improving Capital Markets
Improved Corporate Governance
?
Limitations of FII
?
Management Control
?
Potential Capital Outflows
Myopic Approach Short term trading (Hedge funds)
?
?
Distinction between FDI and FII
Purpose Level of Involvement Time Frame Managerial Control Impact on Economy
ADRs, GDRs & IDRs
Few Terminologies
?
Depository Receipt
Certificates indicating ownership of foreign investors in the stocks of the home country.
?
Custodian
Responsible for safeguarding the financial assets of a firm. Settling any purchase/ sale of assets Providing regular reporting to their clients
?
Depository Bank
Issue depository receipts Purchase equivalent number of shares in the local market
American Depository Receipts
? ? ?
US dollar denominated negotiable instruments Issued in the US by a depositary bank (eg Deutsche Bank), Represent ownership in non-US securities
Unsponsored ADR
?
Properties
? ? ? ?
No involvement of foreign company whose stock underlies the ADR. Shareholder benefits and voting rights cannot be extended to holders Traded over the counter Usually issued by more than one depository bank
Issues Related To unsponsored ADR
?
?
?
Foreign private issuer is not notified of the creation of ADRs. Debut would be determined by the Depository Bank without knowing the long term strategy of issuer. SEC doesn’t permit unsponsored programmes to coexist with a sponsored one.
Sponsored ADR
? ?
Issued in consultation with Depository Bank Only one depository Bank Levels:?
?
?
? ?
ADR Programme Level1 ADR Programme Level2 ADR Programme Level3 Rule 144 ADR
Sponsored ADR Programme – Level 1
Lowest level of depository Receipt ? Easiest and Least expensive with minimal requirements with SEC ? Traded on the OTC ? Filling of an F-6 registration form but allows for exemption under 12G 3-2(b) ? Depository agreement is signed between issuer and Advantages Disadvantages depository bank
?
Issuers have full control over ADR
Relaxed SEC compliance norms Relatively cheaper to upgrade
Capital raising is not permitted
Cannot be listed on exchange Investor has less information about the issuer
Sponsored ADR Programme – Level 2
? ?
?
? ?
Issuer fills F-6 registration form and 20F form Have to follow minimum listing requirements of SEC Submit its annual report in accordance with US GAAP Depository agreement is signed between issuer and depository bank Listed on one of the three main exchanges of US
Disadvantages
Advantages
Increased liquidity and marketability of Capital raising is not permitted the ADR
Enhances the recognition of the ADR Investors can monitor the ADR More SEC compliance norms than ADR level 1 Time consuming and expensive
Sponsored ADR Programme – Level 3
? ?
?
?
Highest level of ADR Have to follow strict rules as followed by other US companies Investor can easily found information on the company Form-6, 20-F and F-1
Advantages
Disadvantages
All the advantages of ADR level 2
Capital raising is permitted
Extremely stringent SEC compliance regulations
Very expensive
Rule 144 - ADR
? ? ?
Issued to QIBs through private placement Investors can raise capital without conforming to full registration and reporting requirements Electronic Trading system for RADRs- PORTAL
Advantages
Disadvantages
Easy and inexpensive way of raising capital
Do not have to confirm to full SEC requirements
Can be sold only to QIBs
Cannot be sold to classes of shares already listed on exchange
A Few Indian ADRs
? ?
?
? ?
?
HDFC Bank Ltd ICICI Bank Ltd Infosys Technologies Ltd Videsh Sanchar Nigam Ltd Wipro Ltd Rediff.com India Ltd
Procedure
?
Pricing of ADRs
?
Not less than the higher of the following two averages: ? Average of the weekly high and low during the six months ? Average of the weekly high and low during the two weeks
?
Termination of ADRs
?
?
?
Owners are notified 30 days prior to termination Cancellation of all depository receipts Delisting from all exchanges where they trade
Global Depository Receipts
?
?
? ?
Similar to ADR except it is sold not only outside the home country but also outside the US Truly Global Programme Can be denominated in dollar, pound, euro Less expensive and time saving then ADR
ADR & GDR Norms in India
? ?
? ?
?
?
Level 1 ADR is not permitted in India Company issuing ADR/GDR can acquire shares of foreign company(core area) up to $100m or amount equivalent to 10 times exports 2 Way fungibility is permitted 100% of proceeds can be used for acquisitions of foreign companies and direct investment in JV and wholly owned subsidiaries Issue related expenses ceiling ? 4% - public issue of GDR ? 2% - private issue of GDR No end use restrictions except for investment of such funds on Real Estate and stock markets
Differences Between ADRs and GDRs
ADRs
?
GDRs
?
Trading in US share markets
?
? ?
More onerous listing procedure 8 – 10 times more expensive Public issue offering can be to retail investors
? ?
Trading in share markets in any but the home country Less onerous listing procedure Less expensive Offering only made to QIBs
?
Indian Depository Receipts
?
?
Like ADR/ GDR except that issuer is a foreign company Rupee denominated Criteria
? ? ? ? ?
?
Pre-issue capital and free reserves of at least 225 crore Market capitalization of at least 450 crore Earned profits in three of the preceding 5 years Pre issue debt-equity ratio should not be more than 2:1 Cannot be redeemed into equity shares before one year from date of issue
Procedure for issuing IDR
?
?
?
Application seeking permission from SEBI must be submitted at least 90 days prior to issue opening date Issuing company appoint overseas custodian, domestic depository, merchant banker Draft prospectus is filed with SEBI prior at least 21 days Taxation
? ? ?
?
Dividend Tax- 30% + 10% surcharge Short Term capital Gains Tax - 30% Long Term Capital Gains Tax - 20%
Benefits of IDR to stakeholders
?
Foreign Companies
? ? ?
Listed in home market can raise money through IDR Improve its brand presence through global visibility Foreign entities of Indian companies may find it easier to raise money for their operations abroad Diversify portfolio Own interest in foreign company No cap of $ 200000 foreign securities investment applicable to IDR Foreign companies without any listed subsidiary company in India can issue ESOPs Regulator Increase liquidity in capital market and more transaction revenues for regulator
?
Investors
? ? ?
?
Employees
? ? ?
Challenges For IDR
?
Stringent Eligibility Norms
?
Volatility in Indian Financial Market
No Reverse Fungibility No Mention of Voting Rights in SEBI guidelines
?
?
doc_858172627.pptx