1. A scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism)
was notified by the Government of India in November, 1993. Revisions/modifications
in the operative guidelines for Euro-issues are announced from time to time.
2. With a view to further liberalising the
operational guidelines and in particular track record scrutiny of the ADR/GDR
proposals and approval mechanism various options were considered by the
Government. Given the fact that investments through ADR/GDR being risk capital,
it has been decided that the track record scrutiny process for ADR/GDR issues
and the two stage approval by the Ministry of Finance, Department of Economic
Affairs could be dispensed with.
3. The following guidelines for ADR/GDR
issues, in continuation of the Notification of November, 1993 (amended in
November, 1999) shall come into effect from the date of issue of these
guidelines. These guidelines will also extend to proposals which have already
been filed with the Ministry of Finance as also in cases where an ‘in
principle’ approval has been issued by the Ministry of Finance, Department of
Economic Affairs. These modified guidelines will, however, not extend to
Foreign Currency Convertible Bond (FCCB) issues which will continue to be
governed by existing guidelines. Further, the 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.
4. 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.
5.
Approvals
5.1 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. Private placement of
ADRs/GDRs would also be eligible for the automatic approval provided the issue
is lead managed by an investment banker. (For the purpose of this scheme, an
investment Banker would be defined as an Investment Banker registered with the
Securities and Exchange Commission in the USA, or under Financial Services Act
in U.K., or the appropriate regulatory authority in Europe, Singapore or in
Japan). The track record condition will not be operative for ADR/GDR issues.
5.2 Automatic route for ADR/GDR issue would
also cover issue of Employee Stock Options by Indian Software
Companies/Companies in the IT Sector in conformity with the guidelines dated
23-6-1998 and 16-9-1998 issued for ADR/GDR linked employees stock options by
Indian Software Companies/Companies in the IT Sector, subject to other approval
requirements, as indicated in para 6 below.
5.3 Issue of ADRs/GDRs arising out of business
reorganisation/merger/demerger would also be governed by Automatic route
subject to the guidelines issued by this Department on 17th August, 1998.
6.
Mandatory Approval Requirements
6.1 In all cases of automatic approval
mentioned above, 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)
etc., would need to be obtained by the company prior to the ADR/GDR issues.
6.2 The issuer company would need to obtain
RBI approval under the provisions of FERA/FEMA prior to the overseas issue.
6.3 Reserve Bank of India will be issuing necessary guidelines.
7.
Option for retention of funds
abroad/repatriation
7.1 Existing guidelines on Euro issues
providing for the option of retention of issue proceeds abroad or repatriation
of funds into the country in anticipation of deployment towards the purposes
for which the funds have been raised would continue to be applicable.
7.2 Retention and deployment of funds abroad would be as prescribed
by RBI.
While no
detailed end uses are specified, the existing bar on investments in stock
markets and real estate would continue to be operative.
9. Issue related expenses
The issue
related expenses (covering both fixed expenses like underwriting commissions,
lead managers charges, legal expenses and other reimbursable 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.
10. Reporting
After completing
the transactions, the companies would be required to furnish full particulars
thereof including amount of ADRs/GDRs issued, number of underlying fresh equity
shares issued, percentage of foreign equity level in the Indian company on account
of issue of ADRs/GDRs (stating whether under automatic route or with FIPB
approval), detailed issue parameters to the Ministry of Finance, Department of
Economic Affairs and the Exchange Control Department of the Reserve Bank of
India, Central Office, Mumbai within 30 days of completion of such
transactions.
Source : Circular : F. No. 15/7/1999-NRI, dated 19-1-2000.
Under the
existing guidelines for overseas investments by the Indian companies, one of
the automatic approval route available without reference to RBI/Government is
where :
(i) such overseas investments
are funded upto a maximum of 50% out of the proceeds of American Depository
Receipts/Global Depository Receipts (ADRs/GDRs) raised; and
(ii) floating of ADR/GDR issue
has been approved by the Government.
Proposals not
conforming to the criteria stipulated above are required to be referred to RBI
or the Special Committee constituted under RBI as the case may be for
consideration and approval.
2. Considering the increasing opportunities
presenting before the Indian Software Companies for expanding globally and
making an international presence and to transform into Multi-National Companies
through acquisitions abroad, it has been decided to liberalise the operational
norms governing overseas investments and mode of financing acquisitions of
overseas software companies.
3. Coverage
The liberalised norms will cover acquisition of overseas software companies only by Indian Software Companies which have been defined as those registered in India and engaged in manufacturing or production of software where 80% of the turnover is from software activities in the three previous financial years.
4. The eligibility for automatic approval will
be operative only in respect of those Indian Software Companies which have
already floated an ADR/GDR issue and are currently listed in the overseas
exchange. In addition, companies who obtain one time “Blanket Approval” from
the Special Composite Committee, would also be eligible for automatic approval.
5. Limit for acquisition
5. Financial limit specified in paras 6(A) and (B) below.
6. Approval mechanism
Overseas acquisition of software companies by Indian software companies
would be governed by the following guidelines :
(A)
Business Acquisition abroad by Indian software companies upto the value limit
of US $ 100 million
(i) Indian Software
Companies which have already floated an ADR/GDR issue and are currently listed
in the overseas exchange, would be eligible to acquire overseas software
companies and issue ADRs/GDRs of the value of the cost of acquisition, on a
back to back basis, on an automatic basis without reference either to the Government
or the RBI.
(ii) In addition, Indian
software companies not covered by (i) above, may obtain a one time “Blanket
Approval” from the Special Composite Committee, by an application made to RBI,
and would thereafter be eligible for automatic approval as in the case of
Indian software companies which have already floated an ADR/GDR issue and are
currently listed in the overseas exchange.
(iii) Such transaction
would be exempt from the prior approval requirement either from the Government
or from the Reserve Bank of India subject to the condition that the cost of
acquisition is met with ADRs/GDRs realisation/stock swaps on a back to back
basis.
(iv) At present, ADR/GDR
offerings require a two stage approval by the Department of Economic Affairs -
an ‘in principle’ approval based on track record requirement and the final
approval for issue parameters. The two stage approval requirement will not be
required for ADR/GDR offerings/stock swap which are being raised/issued
specifically for the purpose of overseas business acquisition by the Indian
software companies as defined above.
(v) The existing limit
of use of upto 50% of the ADR/GDR proceeds for overseas investment is also
removed. Under the revised norms, limited to such acquisition, upto 100% of the
ADR/GDR proceeds may be utilised for such business acquisition.
(vi) The value limit of
US $ 100 million under the above ADR/GDR stock swap would be an annual limit
for each company for one or more acquisitions.
(B) Overseas Business acquisition beyond $ 100 million
In the case of
proposals which do not meet the conditions at (A) above and where the cost
involved in the transaction/overseas business acquisition exceeds $ 100
million, the Indian software company would need to send the proposal to RBI for
consideration by a Special Composite Committee on overseas investment and
ADR/GDR approvals. The Committee would consider according a composite approval,
prescribing a ceiling for overseas acquisition under the above scheme. The
company would, thereafter, report to the committee after finalising the
acquisition, of the details of the transaction.
7. Criteria for automatic approval
The liberalised approval mechanism is subject to the following norms :
(i) The existing
foreign equity including on account of any existing ADR/GDR offering and the
proposed ADR/GDR issue/stock swap in the expanded capital base is within the
limit operative for RBI automatic approval for FDI in the software sector. No
FIPB approval would be required in such cases even if the ADRs/GDRs are issued
otherwise than in cash.
(ii) The proposed
ADR/GDR stock swap for purposes of acquisition of business abroad is by way of
expansion in the capital base or to be precise by way of issue of fresh
underlying shares.
(iii) The present ADR/GDR
guidelines provides for redemption of the ADRs/GDRs into the underlying rupee
denominated shares of the Indian company, sale in the domestic market, and full
repatriation of sale proceeds subject to payment of prescribed tax. The same
provision would extend to ADR/GDR holders of the acquired company. Reconversion
of the underlying shares into ADRs/GDRs is not permissible.
(iv) The proposal would have to conform to the following
valuation norms :
(a) The valuation of the
transaction and of the overseas company shall be as per the recommendation of
an Investment Banker;
(b) In the case of a listed
overseas company, the valuation will be based on the current market
capitalisation of the overseas company (based on the monthly average trading on
the overseas exchange, for the three months preceding the month in which the
acquisition is committed to) and premium, if any, as per the recommendations of
the Investment Banker in the Due-diligence reports;
(c) In the case of an
unlisted overseas company, the valuation will be based on the recommendations
of the Investment Banker.
(v) The proposal being in conformity with all provisions of
the Companies Act, 1956.
(vi) The companies are required to report full details of the transaction including value of the transaction/acquisition cost, foreign equity level in the Indian software company on account of issue of ADRs/GDRs, as detailed in paragraph 8 below.
(vii) Compliance with RBI Regulations.
(viii) Other clearances as applicable being
obtained by the Company.
(For the purpose
of this scheme, an Investment Banker would be defined as an Investment Banker
registered with the Securities and Exchange Commission in the USA, or under
Financial Services Authority in U.K. or the appropriate regulatory authority in
Germany, France, Singapore or in Japan).
8. Reporting
After completing
the transactions/acquisitions, Indian companies should furnish full particulars
thereof including amount of ADRs/GDRs issued, percentage of foreign equity
level in Indian company on account of such issue, name/s of the overseas
company/ies acquired, cost of acquisition, percentage of holding of Indian
company in the foreign company, details of its line of activity, country of
location, etc., together with relevant documents like valuation report by the investment
banker to the Ministry of Finance, Department of Economic Affairs and Reserve
Bank of India, Exchange Control Department, Overseas Investment Division,
Mumbai within 30 days of completion of such transactions. On receipt of these
particulars, Reserve Bank will issue specific identification number in respect
of each overseas company acquired and Indian companies will have to comply with
the existing requirement regarding submission of Annual Performance Reports,
repatriation of entitlements from the overseas concerns, etc.
9. Format of the application
The application
will have to be submitted to the Reserve Bank of India in the existing forms of
overseas investment and for ADR/GDR together by an applicant, for the time
being, who will have the option to supplement the information.
10. This scheme is in addition to the existing
routes available for overseas investment including the automatic approval
route.
Source : Circular : F.No. 15/22/99 - NRI, dated 27-12-1999.
1. In pursuance of clause (a) and clause
(d) of sub-section (1) of section 19 and clause (b) of sub-section (1) of
section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and all
other powers enabling it in this regard, the Reserve Bank is pleased to permit—
(a) a
company incorporated in India which fulfils the eligibility criteria laid down
in para 2,
(i) to make an
international offering of rupee denominated equity shares of the company by way
of issue of Global Depository Receipts (GDRs)/American Depository Receipts
(ADRs) to persons resident outside India;
(ii) to
export the said securities to investors outside India; and
(b) the
investors to acquire the securities so purchased.
2. (i) The
issuing company has necessary approval from the Ministry of Finance, Government
of India to issue such
ADRs/GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme or notification
issued by the Ministry of Finance.
(ii) The issuing company is
eligible to issue shares to foreign investors under the automatic route of
Reserve Bank of India or has necessary approval from Secretariat for Industrial
Assistance (SIA)/Foreign Investment Promotion Board (FIPB) and the percentage
of foreign equity does not exceed the limits specified under the automatic
route or the limits specified by the SIA/FIPB.
3. The company issuing GDRs/ADRs is also permitted—
(i) to issue shares in the
name of the depository or its nominees and to place the share certificates in
respect of the said shares in the physical custody of a custodian in India
against which the depository will issue GDRs/ADRs outside India;
(ii) to remit dividends
through an authorised dealer as and when due subject to payment of Indian taxes
as applicable;
(iii) to
issue rights or bonus shares that may accrue in respect of the GDRs/ADRs;
(iv) to incur issue related
expenses as approved by the Ministry of Finance, Government of India or up to
the limits laid down in the relevant guidelines issued by the Government of
India;
(v) to pay the issue related
expenses by way of deductions from the issue proceeds as approved by the
Ministry of Finance, Government of India or up to the limits laid down in the
relevant guidelines issued by the Government of India;
(vi) to remit and pay for
filing, listing, agency or other fees on ongoing basis in respect of
international stock exchange where the GDRs/ADRs are listed;
(vii) to
maintain a foreign register of members, if so required;
(viii) to open an account abroad to receive the
subscription monies in foreign currency;
(ix) to pay any foreign tax
in the nature of sales or value added tax in respect of services provided to
the issuing company and reimburse any out of pocket expenses;
(x) to repatriate the
proceeds of the issue to India for deployment for purposes permitted by the
Government of India; pending repatriation of issue proceeds to India—
(a) to invest the funds as an
interim arrangement on short-term basis as deposits in foreign banks which are
rated for short-term obligations A1 + by Standard and Poor or P1 by Moody’s or
with the branches of Indian banks abroad; or
(b) to invest in treasury
bills and other monetary instruments with maturities and exceeding one year; or
(c) to keep the funds as
foreign currency deposits with authorised dealers and/or public financial
institutions in India; or
(d) to invest in certificate
of deposit or other paper issued outside India by bank incorporated in India.
4. The issuing company shall—
(i) furnish a statement to
Exchange Control Department of Reserve Bank of India, Central Office, Mumbai,
within thirty days from the date of closing of the issue providing full
particulars of the issue such as amount of GDRs/ADRs issued, a number of
underlying fresh equity shares issued, listing arrangements, total amount
raised, amount retained abroad and other relevant details regarding launching
and initial trading of the GDRs;
(ii) furnish capital
structure of the company before and after the issue within thirty days from the
closure of the issue;
(iii) inform Reserve Bank of
any repatriation of issue proceeds held abroad immediately on such
repatriation.
Source : Notification No. GSR
109(E), dated 20-1-2000, issued by the Reserve Bank of India.
Guidelines were
issued on 27th December, 1999 to liberalise the operational norms including
approval mechanism for overseas business acquisition by the Indian Software
Companies. In his Budget Speech 2000-2001, the Finance Minister had announced
the intent to further liberalise the policy for acquisition of companies abroad
and to extend the policy to wider spectrum of companies in the knowledge-based
sectors to expand globally and transform into Multi-National Companies in areas
where India has comparative economic advantage.
2. In partial modification of the
guidelines issued on 27-12-1999, following parameters are set out for overseas
business acquisition through ADR/GDR stock swap :
3. Coverage
The liberalised
norms will extend to Indian companies engaged in areas/activities as indicated
in Annexure to these guidelines for acquisition of overseas companies in their
respective areas of business. The Indian companies in the specified
sectors/areas are defined as those registered in India and 80% of the turnover
is from these respective areas of the operation/business of the company in the
three previous financial years. In the case of multi-product diversified
company, not conforming to the 80% criteria, the liberalised norms would be
applicable if they have an average annual export earnings of at least Rs. 100
crores in the three previous financial years in these sectors/areas.
4. Limit for acquisition
Overseas
business acquisition by specified Indian Companies would be governed by the
following guidelines :
(A) Overseas
business acquisition abroad by the specified Indian companies under the
automatic route
The financial
limit to overseas business acquisition on an automatic basis without reference
either to the Government or the RBI on a back to back basis i.e., through stock
swap will be as follows :—
(i) US
$ 100 million; or
(ii) Upto 10 times the
export earning of the investing company during the preceding year as reflected
in the audited balance sheet of the company.
For (ii) above
if any other facility has been availed by the investing company for overseas
investment through any other window including item (i) above during the
financial year, the same would be adjusted and the entitlement would be for the
balance amount.
The value limits
indicated above would be an annual limit (financial year) for each company for
one or more acquisitions.
Other criteria for qualifying for automatic route would continue to
apply.
(B) Overseas business acquisition not governed by the automatic route
Cases not
covered by (A) above, the specified Indian Company would send the proposal to
RBI for consideration by the Special Composite Committee for Overseas
Investment through ADR/GDR Stock Swap.
5. The criteria for automatic approval and
other norms contained in the guidelines of 27th December, 1999 including the mandatory
requirement of conforming to the FDI policy, an existing ADR/GDR listing abroad
and reporting requirement, etc., would continue to be operative.
6. After issue of ADRs/GDRs for
acquisitions, the particulars thereof, along with the copy of the documents
submitted to the regulatory authorities in the host country should be
transmitted to DEA and RBI within a month as post facto reports along with
certification about compliance with the eligibility with reference to the
definition of the company in the specified permitted category/sector and
entitlement based on export earnings.
7. In respect of each overseas company
acquired under the scheme, an Annual Performance Report, as per the existing
procedure, citing the Identification Number allotted by RBI in respect of such
overseas companies should be sent to RBI for the purpose of compilation of data
and monitoring.
8.
The above policy will be subject to review as considered necessary by
the Government.
(1) Information Technology
[as defined in the recommendation Nos. 19(a) and (b) of Gazette Notification,
dated 25-7-1999 issued by the Planning Commission] and Entertainment Software.
(2) Pharmaceuticals.
(3) Bio-technology.
(4) Any other activity within
the knowledge based sector as notified by the Government from time to time.
Source : Press release, dated 23-3-2000.
1. Guidelines by way of a press
note were issued on June 23, 1998, containing operational parameters and
modalities for issue of ADR/GDR linked stock options to its employees by the
Indian software companies. Revisions/modifications to expand the scope of
application to the Indian companies engaged in information technology software
and information technology services had been issued on September 16, 1998.
Enabling amendment notification operating the facility for ADR/GDR linked
employees stock options had been issued by the Government on November 10, 1999,
under the “Scheme for issue of Foreign Currency Convertible Bonds and Ordinary
Shares (Through Depository Receipts Mechanism)”.
2. The Government has been considering
expansion in the coverage of employees who would be entitled to the ESOPs in
line with the SEBI guidelines on ESOPs which covers employees of a subsidiary
company for the purposes of ESOPs.
3. Keeping in view the essential features
of the relationship between the parent company and subsidiaries, viz.,
interchangeability of the employees between the parent and subsidiary
companies, inter-linkage of the parent and subsidiary companies and
complementality of the functions between the two, it has since been decided to
expand the facility for issue of ADR/GDR linked stock options to include
employees of eligible subsidiary companies of the parent company, under the
scheme. Accordingly, Indian companies engaged in the IT software and IT
services, would be entitled to issue ADR/GDR linked stock options to the
permanent employees (including Indian and overseas working directors) of its
subsidiary companies incorporated in India or out of India and engaged in
information technology software and information technology services subject to
the eligibility criteria and other parameters prescribed in the press note
dated June 23, 1998 and September 16, 1998.
4. These guidelines will come into force with immediate effect.
Source : PIB Press release, dated 16-6-2000, issued by the Press Information
Bureau.
Guidelines by
way of a Press Note were issued on 23rd June, 1998 containing operational
parameters and modalities for issue of ADR/GDR linked stock options to its
employees by the Indian Software Companies. Revisions/modifications to expand
the scope of application to the Indian companies engaged in Information Technology
Software and Information Technology Services had been issued on 16th September,
1998. These guidelines were further modified by the Government on the 16th
June, 2000, expanding the coverage of employees who would be entitled to the
ESOPs in line with the SEBI guidelines on ESOPs, which include employees of a
subsidiary company for the purposes of ESOPs. Enabling amendment Notification
operating the facility for ADR/GDR linked employees stock options had been
issued by Government on 10th November, 1999, under the “Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipts Mechanism).”
2. Guidelines were issued on the 23rd March,
2000, liberalising the norms for overseas business acquisition by Indian
companies in terms of which :
(i) the norms for
acquisition of overseas companies was extended to Information Technology and
Entertainment Software, Pharmaceuticals, Bio-technology and any other activity
within the knowledge based sector as notified by the Government from time to
time; and
(ii) in the case of
multi-product diversified company, not conforming to the eligibility criteria
of 80% of the turnover from the sectors/areas mentioned above, the liberalised
norms would be applicable if they have an average annual export earnings of Rs.
100 crores in the three previous financial years in these sectors/areas.
3. It has been decided to extend the
liberalised norms as mentioned in para 2 above in respect of the issue of
ADR/GDR linked Employee Stock Options as well. This would imply that :
(I) The companies in
the following knowledge based sectors would be eligible to issue ADR/GDR linked
ESOPs with a view to enable retaining their highly skilled personnel :
(i) Information
Technology (as defined in the recommendation No. 19(a) and (b) of Gazette
Notification, dated 25-7-1999 issued by the Planning Commission) and
Entertainment software.
(ii) Pharmaceuticals.
(iii) Bio-technology.
(iv) Any other activities
within the knowledge based sector as notified by the Government from time to time.
(II) The liberalised
norms would also be available to multi-product, diversified companies which do
not conform to the criteria of 80% of its turnover from the sectors mentioned
in para 3(1) above, in case they fulfil the condition of average annual export
earnings of Rs. 100 crores from these sectors in the three previous financial
years.
4. These guidelines will come into force with immediate effect.
Source : Press release, dated 15-9-2000.