Attention of authorised dealers is invited to Reserve Bank Notification No. FEMA-20/2000-RB, dated 3rd May, 2000. In terms of paragraphs 4(2) and (3) of Schedule I to the above Notification, Indian companies issuing ADRs/GDRs shall furnish to Reserve Bank full details of such issue in the form specified in Annexure “C” within 30 days from the date of closing of the issue and a quarterly return in the form specified in Annexure “D” within fifteen days from the close of the calendar quarter, respectively. However, it is observed that some of the companies are not submitting Annexures “C” and “D” within the stipulated time.
2. Authorised dealers may advise their
constituents who have issued ADRs/GDRs or who are going for ADR/GDR issues to
submit Annexures “C” and “D” within the stipulated time.
Source : A.P. (Dir Series) Circular No. 14, dated
26-9-2000, issued by the Exchange Control Department, RBI
As you are
aware. FIs are permitted to raise capital through issue of Global Depository
Receipts (GDRs) or American Depository Receipts (ADRs) within the limits
prescribed for Foreign Direct Investment by the Government of India. As per the
guidelines issued by the Government of India for ADR/GDR issues, FIs are
eligible for GDR/ADR issues without reference to the end-use criteria with the
restriction that investments in stock market and real estate are not permitted.
2. The issue of repatriation of the proceeds
of GDRs/ADRs issued by FIs has been reviewed by us. Considering the fact that
FIs, which are raising capital abroad for improving their capital base, have
largely rupee-denominated assets and that most of the risk limits are linked to
their capital, FIs are advised to repatriate the entire proceeds of GDRs/ADRs
soon after the issue process is completed. This provision would also be
applicable to direct investments in FIs made by NRIs/OCBs, foreign banking
companies or finance companies, including multilateral institutions.
Source : Notification No. DBS.FID
No.C 1/01.02.00-2000/2001, dated 20-7-2000, issued by the RBI.
Guidelines were
issued on 27th December, 1999, by the Government under the “Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipts Mechanism)” notified in November, 1993, to liberalise the operational
norms including approval mechanism for overseas business acquisition by the
Indian Software Companies through ADR/GDR stock swap. These guidelines were
amended on 23rd March, 2000, to expand the scope of companies entitled to such
overseas business acquisition through ADR/GDR stock swap to Indian companies
engaged in areas/activities of (1) Information Technology and Entertainment
Software; (2) Pharmaceuticals; (3) Bio-technology, and (4) any other sector as
notified by the Government from time to time.
In terms of these
guidelines, Overseas Business Acquisitions through ADR/GDR stock swap by Indian
companies engaged in the specified activities have been put under automatic
approval subject to the specified parameters including the conditions of
previous listing, adherence to FDI policy and the value limit for the
transaction not to exceed $ 100 million or ten times the export earnings during
the preceding financial year.
As had been
provided in these guidelines, the feasibility of expanding the eligible
categories of companies had been reviewed. Pursuant to the announcement made by
the Finance Minister in his Budget Speech 2001-2002 the restriction on the
eligible categories of companies to specified activities in the knowledge-based
sector had been removed. Accordingly all companies who have made an ADR/GDR
issue earlier and listed abroad would be entitled to the facility of overseas
business acquisition through ADR/GDR stock swap under the automatic route. The
companies would be entitled to such business acquisition engaged in the same
core activity as defined in the RBI Regulations under FEMA. Consequently the
definition prescribed for specified sectors/areas in DEA guidelines 27th
December, 1999 and 23rd March, 2000, would no longer be operative. All other
criteria for automatic route and other norms prescribed in the guidelines of
27th December, 1999 (as amended on 23rd March, 2000), including the mandatory
requirement of conforming to the FDI policy, an existing ADR/GDR listing
abroad, reporting requirement, etc., would continue to be operative.
The above
policy/guidelines issued under the “Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism)”
notified in November, 1993, will be subject to review as considered necessary
by the Government.
Source : Press release, dated
17-4-2001.
(a) Reissuance
of ADR/GDR would be permitted to the extent of ADRs/GDRs which have been
redeemed into underlying shares and sold in the domestic market. The
arrangement is demand driven with the process of reconversion emanating with
the request for acquisition of domestic shares by non-resident investor for
issue of ADRs/GDRs.
(b) Investments
under the Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme, 1993 are treated as direct foreign investment.
Accordingly, the transaction under the reconversion arrangement will be
distinct and separate from FII portfolio investments.
(c) The
transaction will be effected through the Securities and Exchange Board of India
(SEBI) registered stock brokers as intermediaries between foreign investors and
domestic shareholders. A general permission has been conveyed by the Reserve
Bank of India (RBI) through Notification No. FEMA.41/2001-RB, dated 2nd March,
2001, authorising such stock brokers to acquire domestic shares on behalf of
the overseas investors for being placed with the domestic Custodian.
(d) For this
purpose all SEBI registered brokers will be able to act as intermediary in the
two-way fungibility of ADRs/GDRs. The RBI has conveyed general permission
through Notification No. FEMA.41/2001-RB, dated 2nd March, 2001, for these
brokers to buy shares on behalf of the overseas investor.
(e) As a
secondary market transaction, the acquisition of such shares through the
intermediary on behalf of the overseas investors would fall within the
regulatory purview of the SEBI. The Custodian would monitor the reissuance and
furnish a certificate to both the RBI and SEBI to ensure that the sectoral caps
are not breached. The RBI would monitor the receipt of certificates from the
Custodian to this effect.
(f) The
domestic Custodian who is the intermediary between overseas depository on the
one hand and Indian company on the other will have the record of the ADRs/GDRs
issued and redeemed and sold in the domestic market.
(g) The
domestic Custodian will also be required to ascertain the extent of
registration in favour of ADR/GDR holders/non-resident investor based on the
advice of overseas depository to the domestic Custodian for the underlying
shares being transferred in the books of account of the issuing company in the
name of the non-resident on redemption of the ADRs/GDRs.
(h) The
Custodian is also required to verify with the Company Secretary/NSDL 1[/CDSL] if the total cap is
being breached if there is a percentage cap on foreign direct investment.
(i) On
request by the overseas investor for acquisition of shares for reissuance of
ADRs/GDRs, the SEBI registered broker will purchase a given number of shares
after verifying with the Custodian whether there is any Head Room available.
(j) Head
Room = Number of ADRs/GDRs originally issued minus number of GDRs outstanding
further adjusted for ADRs/GDRs redeemed into underlying shares and registered
in the name of the non-resident investor(s). The domestic Custodian would
notify the extent up to which reissuance would be permissible—the redemption
effected minus the underlying shares registered in the name of the non-resident
investor with reference to original GDR issue and adjustment on account of
sectoral caps/approval limits.
(k) The Indian
broker would receive funds through normal banking channels for purchase of
shares from the market. The shares would be purchased in the name of the
overseas depository and the shares would need to be purchased on a recognized
stock exchange.
(l) Upon
acquisition the Indian broker would place the domestic share with the
Custodian; the arrangement would require a revised custodial agreement under
which the Custodian would be authorized by the company to accept shares from
entities other than the company.
(m) The
Custodian would advise overseas depository on the custody of domestic share and
that corresponding ADRs/GDRs may be issued to the non-resident investor.
(n) Overseas depository would issue corresponding ADRs/GDRs to the investor.
(o) The
domestic Custodian in addition would have to ensure that the advices to the
overseas depository are issued on the first come first serve basis i.e., the
first deposit of domestic/underlying shares with a custodian shall be eligible
for the first reissuance of ADRs/GDRs to the overseas investors.
(p) The
Custodian would also have to ensure that ordinary shares only to the extent of
the depletion in ADRs/GDRs stock are deposited with it. This can be readily
ensured by adopting a system similar to the trigger mechanism adopted for FIIs.
Once the trigger mechanism is reached, say at 90 per cent of the depletion in
the ADR/GDR stock, each buying transaction of domestic shares would be
completed only after the Custodian has approved it.
(q) A monthly
report about the ADR/GDR transaction under the two-way fungibility arrangement
is to be made by the Indian Custodian in the prescribed format to the RBI and
SEBI.
(r) The broker
has to ensure that each purchase transaction is only against delivery and
payment thereof is received in foreign exchange.
(s) The broker
will submit the contract note to the Indian Custodian of the underlying shares
on the day next to the day of the purchase so that the Custodian can reduce the
Head Room accordingly. Copy of the Contract Note would also need to be provided
by the Custodians to the RBI and SEBI. The broker will also ensure that a
separate rupee account will be maintained for the purpose of buying shares for
the purpose of effecting two-way fungibility. No forward cover will be
available for the amounts lying in the said rupee account. The ADs will be
permitted to transfer the monies lying in the above account on the request of
the broker.
(t) The
Custodian of the underlying shares and the depositories would coordinate on a
daily basis in computing the Head Room. Further, the company secretary of each
individual company would provide details of non-resident investment at weekly
intervals to the Custodian and the depository. The Custodian would monitor the
reissuance and furnish a certificate of both the RBI and SEBI, to ensure that
the sectoral caps are not breached. The RBI would monitor the receipt of
certificates from the Custodian to this effect.
(u) The
reissuance would be within the already approved/issued limits and would only
effectively mean transfer of ADRs/GDRs from one non-resident to another and
accordingly no further approval mechanism be insisted upon.
(v) In the
limited two-way fungibility arrangement, the company is not involved in the
process and is demand driven i.e., request for ADRs/GDRs emanates from overseas
investors. Consequently, the expenses involved in the transaction would be
borne by the investors, which would include the payments due to overseas
intermediary/broker, domestic Custodians, charges of the overseas and domestic
brokers.
(w) The tax
provision under section 115AC of the Income-tax Act, 1961, which is applicable
to non-resident investors investing in ADRs/GDRs offered against issue of fresh
underlying shares would extend to non-resident investors investing in foreign
exchange in ADRs/GDRs issued against existing shares under these guidelines, in
terms of the relevant provisions of the Income-tax Act, 1961.
Source : AP (DIR Series) (2001-2002)
Circular No. 21, dated 13-2-2002.
In order to facilitate the two way fungibility of ADRs/GDRs, RBI had
notified the amendments to Foreign Exchange Management Act, 1999 in March 2001
and had issued operating guidelines on February 13, 2002.
In order to ensure easy tracking of the underlying shares released on
the conversion of the “depository receipts”, it has been decided that all such
shares shall mandatorily be credited to a separate Depository Receipts (DRs)
account of the respective investor.
The depositories shall ensure to provide the following information to
the domestic custodians holding the underlying shares on a regular basis :
1. Total number of shares at the beginning
of the month.
2. Number of shares credited during the
month.
3. Number of shares transferred out of the
account (debited) during the month.
4. Balance at the end of the month.
Depositories should also inform the beneficiary account holders to
transfer their current holding of DR converted shares into the separate DRs
account by July 15, 2002.
Source : D&CC/FITTC/CIR-09/2002,
dated 4-7-2002, issued by Depositories and Custodial Division, SEBI.
Please refer to
the Operative Guidelines for the two-way fungibility under the “Issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism) Scheme, 1993” issued by Reserve Bank of India (“RBI”) vide
its Circular No. 21 (DIR Series) dated February 13, 2002.
In this regard
it has been clarified by RBI that the participation of the OCBs in the above
mentioned scheme is being considered by the Government and that it has been
decided that the two-way fungibility scheme can be kept on hold for OCBs for
the time being till a full review is made. The letter of RBI communicating the
above is enclosed.
Circular No. EC.CO.
ITD(1)/1118/10.01.02.05.01/2002-03, dated 26-8-2002.
Please refer to
your letter No. ITTC/FII/14671/02, dated 2nd August, 2002 on the captioned
subject. The matter has been considered by the Government and it has been
decided that the two way fungibility scheme can be kept on hold for OCBs for
the time being till a full review is made. Hence, the scheme can be operated
only for foreign investors other than OCBs.
Source : D&CC/FITTC/CIR-10/2002,
dated 25-9-2002.
Please refer to the Operative Guidelines on the two-way fungibility
under the issue of “Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme, 1993” issued by Reserve Bank of
India (“RBI”) vide its Circular No. 21 (DIR Series) dated February 13, 2002.
In this regard RBI has clarified the following :
1. Certificate
regarding non-breaching of sectoral caps to RBI/SEBI in terms of clause (e) of
the Operative Guidelines shall be submitted by the custodians on monthly basis.
This monthly certificate shall be submitted by the custodians by 10th of every
month.
2. Monthly
report in terms of clause (q) of the Operative Guidelines shall be submitted by
the custodians to RBI/SEBI in the enclosed format (see p. 7.131). This monthly
report shall be submitted by the custodians both in hard copy as well as soft
copy by 10th of every month.
The custodians are therefore advised to ensure compliance of the
aforesaid clarifications.
1. A Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
was notified by the Government of India on 12-11-1993. Revisions/modifications
in the operative guidelines of the scheme have been made from time to time.
2. Pursuant to—
(i) Finance Minister’s
Budget Speech of 2001-2002 to permit Indian companies to list in foreign stock
exchanges by sponsoring ADR/GDR issues against block shareholding and that this
facility would have to be offered to all categories of shareholders; and
|
S. No. |
Name of Indian Company |
Sectoral Cap Applicable, if any |
Whether Sectoral Cap Breached Say yes or No |
Total No. of ADR/GDR issued including those due to corporate actions |
Progressive No. of ADR/GDR redeemed in the previous month |
Progressive No. of ADR/GDR redeemed till the previous month and sold in the market |
Progressive No. of ADR/GDR reissued till the previous month |
ADR/GDR redeemed during month and sold in the market |
ADR/GDR reissued during the month |
Total No. of ADR/GDR outstanding at the end of the month |
Amount of inward remittance |
Quantity of Unsold shares arising out of ADR/GDR conversion |
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1 |
2 |
3 |
4 |
5 |
6 |
7 |
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9 |
10 |
11 |
12 |
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Source : Circular D&CC/FITTC/Cir-11/2002, dated 3-10-2002.
(ii) the FEMA
Notification No. 41/2001-RB 2nd March, 2001 ([2001] 41 CLA (St.) 85) issued by
the Reserve Bank of India in this regard,
the issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism) Scheme, 1993, notified by the Ministry of Finance,
Department of Economic Affairs, as amended from time to time, is amended as
under:
(1) A listed Indian
company may sponsor and issue of ADRs/GDRs with an overseas depository against
shares held by its shareholders.
(2) Such a facility would
be available pari passu to all categories of shareholders of the company whose
shares are being sold in the ADR/GDR market overseas.
(3) Such issues would
need to conform to the FDI policy and other mandatory statutory requirements.
The provisions of paragraph (4B) of Schedule I to the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000 as notified by Reserve Bank of India vide Notification No.
FEMA 41/ 2001-RB, dated 2nd March, 2001, would also need to be adhered to.
Source : Press Note [F. No.
15/7/99-NRI] dated 16-4-2001 issued by the Department of Economic Affairs.
(i) Divestment
by shareholders of their holdings of Indian companies, in the overseas markets
would be allowed through the mechanism of Sponsored ADR/GDR issue in respect of
:—
(a) Divestment
by shareholders of their holdings of Indian companies listed in India;
(b) Divestment
by shareholders of their holdings of Indian companies not listed in India but
which are listed overseas.
(ii) The
process of divestment would be initiated by such Indian companies whose shares
are being offered for divestment in the overseas market by sponsoring ADR/GDR
issues against the block of existing shares offered by the shareholders under
the provisions of these guidelines.
(iii) Such a
facility would be available pari passu to all categories of shareholders, of
the company whose shares are being sold in the ADR/GDR markets overseas. This
would ensure that no class of shareholders gets a special dispensation.
(iv) The
sponsoring company, whose shareholders propose to divest existing shares in the
overseas market through issue of ADRs/GDRs will give an option to all its
shareholders indicating the number of shares to be divested and the mechanism
how the price will be determined under the ADR/GDR norms. If the shares offered
for divestment are more than the pre-specified number to be divested, shares
would be accepted for divestment in proportion to existing holdings.
(v) The
proposal for divestment of the existing shares in the ADR/GDR market would have
to be approved by a special resolution of the company whose shares are being
divested.
(vi) The
proceeds of the ADR/GDR issue raised abroad shall be repatriated into India
within a period of one month of the closure of the issue.
(vii) Such
ADR/GDR issues against existing shares arising out of the divestment would also
come within the purview of the existing SEBI Takeover Code if the ADRs/GDRs are
cancelled and the underlying shares are to be registered with the company as
shareholders.
(viii) Divestment
of existing shares of Indian companies in the overseas markets for issue of ADRs/GDRs
would be reckoned as FDI. Such proposals would require FIPB approval as also
other approvals, if any, under the FDI policy.
(ix) Such
divestment inducting foreign equity would also need to confirm to the FDI
sectoral policy and the prescribed sectoral cap as applicable. Accordingly the
facility would not be available where the company whose shares are to be
divested is engaged in an activity where FDI is not permitted.
(x) Each case
would require the approval of FIPB for foreign equity induction through offer
of existing shares under the ADR/GDR route.
(xi) Other mandatory approvals
such as those under the Companies Act, etc., as applicable would have to be
obtained by the company prior to the ADR/GDR issue.
(xii) The issue
related expenses (covering both fixed expenses like underwriting commissions,
lead managers charges, legal expenses and reimbursable expenses) for public
issue shall be subject to a ceiling of 4% in the case of GDRs and 7% in the
case of ADRs and 2% in case of private placements of ADRs/GDRs. Issue expenses
beyond the ceiling would need the approval of RBI. The issue expenses shall be
passed on to the shareholders participating in the sponsored issue on a pro
rata basis.
(xiii) The shares
earmarked for the sponsored ADR/GDR issue may be kept in an escrow account
created for this purpose and in any case, the retention of shares in such
escrow account shall not exceed 3 months.
(xiv) If the
issues of ADR/GDR are made in more than one tranche, each tranche would have to
be treated as a separate transaction.
(xv) After
completing the transactions, the companies would need to furnish full
particulars thereof including amount raised through ADRs/GDRs, number of
ADRs/GDRs issued and the underlying shares offered, percentage of foreign
equity level in the Indian company on account of issue of ADRs/GDRs, details of
issue parameters, details of repatriation, and other details to the Exchange
Control Department of the Reserve Bank of India, Central Office, Mumbai within
30 days of completion of such transactions.
(xvi) The tax
provision under section 115AC of the Income-tax Act, 1961, which is applicable
to non-resident investors for ADR/GDR offering against issue of fresh
underlying shares would extend to non-resident investors investing in foreign
exchange in ADRs/GDRs issued against disinvested existing shares, in terms of
the relevant provisions of the Income-tax Act, 1961.
(xvii)Resident shareholders divesting their holdings
will be subject to Capital gain tax provisions applicable under the Income-tax
Act, 1961, i.e., section 115AC applicable for non-residents would not extend to
them.
Source : No. 15/23/99-NRI, dated 29-7-2002, issued by Ministry of Finance.
Government has received some suggestions regarding permitting use of
ADR/GDR/FCCB proceeds to acquire shares of PSUs under the disinvestment
programme of the Government. As per the current guidelines, there are no endues
restrictions for ADR/GDR/FCCB proceeds other than the existing ban on investment
in real estate and stock markets.
2. The suggestion is that in view of the impending large scale
disinvestment of PSU stocks in the near future, Indian bidders would be
required to mobilise huge sums of money for purchasing such stocks. The
domestic bidders might suffer from two structural constraints. One relates to
the restriction on bank financing to capital market and another relates to
exposure limits to borrowers. Therefore, attention has been drawn to the
prohibition of end-use of proceeds of ADRs/GDRs/FCCBs/ECBs. The view is that
this prohibition not only puts restrictions on Indian bidders in the first
stage offer to the Government, but also to fund the second stage of mandatory
public offer under SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997.
3. In view of the Government’s policy to promote the
disinvestment programme of PSU shares, the matter has been reconsidered.
4. In view of the above, a view has been taken that ADR/GDR/FCCB
proceeds could be used in the first stage acquisition of shares in the
disinvestment process and also in the mandatory second stage offer to the
public, in view of their strategic importance.
5. These modifications shall come into
effect after the date of issue of these guidelines.
Source : F. No. 15/4/2002 - NRI, dated 8-7-2002, issued by Ministry of Finance.
Euro Issues - Guidelines for prepayment of foreign currency
convertible bond issued by Indian Companies
1. A Scheme for the Issue of Foreign
Currency Convertible Bonds (FCCBs) 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
scheme, it has been decided by the Government to allow Indian companies to
prepay the existing FCCBs subject to the following conditions :
(a) This provision of
pre-payment (premature purchase) of existing FCCBs will be available upto 30th
September, 2003. The existing condition of minimum maturity period for
redemption of bonds (i.e., 5 years) is put on hold till 30th September, 2003.
(b) The initiation
power/right of prepayment is vested with the issuer of Bonds and not with the
holder of bonds. However, the actual pre-payment is subject to the consent of
the holder of the bond.
(c) The pre-payment should
be at most the face value of bonds and not exceeding the face value (inclusive
of all expenses for such buy-back).
(d) The bonds purchased from
the holders must be cancelled and should not be re-issued or re-sold.
(e) The funds resources for
making such prepayment by the company shall not be by resorting to fresh
external debt.
(f) This prepayment scheme
of FCCBs will not have any effect on the bondholders of Indian companies not
opting this window or on the non-participating bondholders of Indian companies
opting this window.
3. This scheme is available under automatic
route upto a limit of US $ 100 million if the prepayment is made out of local
resources and without any limit if prepayment is out of EEFC funds or inward
remittances towards equity subject to the fulfilling of the conditions
mentioned in para 2 of this guideline.
4. After completing the transactions, the
companies would be required to furnish full particulars thereof including the
number of bonds repurchased (i.e., prepaid), the rate of repurchase (including
expenses, if any), the number of residual bonds, source of funds to the
Ministry of Finance and Company Affairs, Department of Economic Affairs and the
Foreign Investment Division, Exchange Control Department of the Reserve Bank of
India, Central Office, Mumbai within 30 days of completion of such
transactions.
5. All transactions under this scheme shall be performed on or
before 30th September 2003.
Source : Press Note [F. No.
15/11/99-NRI] dated 5-2-2003, issued by the Department of Economic Affairs
(Investment Division).
[K1]Inserted by AP (DIR Series) (2001-2002) Circular No. 37, dated 9-4-2002.