Issue of ADR/ GDR in India

1. What are the regulations pertaining to issue of ADRs/GDRs by Indian companies?

Indian companies are allowed to raise capital in the international market through the issue of ADRs/GDRs. They can issue ADRs/GDRs without obtaining prior approval from RBI if it is eligible to issue ADRs/GDRs in terms of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and subsequent guidelines issued by Ministry of Finance, Government of India.

After the issue of ADRs/GDRs, the company has to file a return in the proforma given in Annexure `C’ to the RBI Notification No.FEMA.20/ 2000-RB dated May 3, 2000. The company is also required to file a quarterly return in a form specified in Annexure `D’ of the same regulations.

There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.

2. What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/GDR?

Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The Operative guidelines for the same have been issued vide A.P.(DIR Series) circular No.52 dated November 23, 2002.

Two-way fungibility Scheme: Under the limited two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/GDRs. The operative guidelines for the same have been issued vide A.P.(DIR Series) Circular No.21 dated February 13, 2002.

The Scheme provides for purchase and re-conversion of only as many shares into ADRs/GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long ADRs/GDRs are quoted at discounts to the value of shares in domestic market, an investor will gain by converting the ADRs/GDRs into underlying shares and selling them in the domestic market. In case of ADRs/GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/GDRs. The scheme is operationalised through the Custodians of securities and stockbrokers under SEBI.

Priya Chetty

Partner at Project Guru
Priya Chetty writes frequently about advertising, media, marketing and finance. In addition to posting daily to Project Guru Knowledge Tank, she is currently in the editorial board of Research & Analysis wing of Project Guru. She emphasizes more on refined content for Project Guru's various paid services. She has also reviewed about various insights of the social insider by writing articles about what social media means for the media and marketing industries. She has also worked in outdoor media agencies like MPG and hotel marketing companies like CarePlus.

Related articles

  • Conversion of ADR into shares At present, ADRs/GDRs of companies such as Infosys and Satyam trade at a substantial premium to the domestic price, while that of companies....
  • Funding structure at L&T infrastructure finance company limited L&T group consider funding structure as the primitive process which essentially guides them to allot the funds according to the projects which are about to liberate under their segments (Sorn 2006).
  • Debt substitution at L&T infrastructure finance company limited L&T infrastructure finance company is an outstanding group which is the sub portion of Larsen and Toubro limited established in 2006 under the guidelines of RBI acts.
  • International Finance Sources of External Finance :- The main sources of external Finance for the developing countries could be classified on the following broad heads
  • Stock market efficiency While investing in the stock market, the main aim for anyone is to generate the return on invested capital. Investors aren’t only trying to get the profitable returns from investing capital, but they also expect to outperform in the market.
Discussions

1 Comments.

  1. There are someuseful stuff. I will be able to actually take note. Just saying thanks will not just be sufficient, for the great clarity in your writing.

Discuss

We are looking for candidates who have completed their master's degree or Ph.D. Click here to know more about our vacancies.