Saturday, November 3, 2012

ADR/GDR/FCCB Issues - Indian Regulations

Circulars, Notifications Related to ADR/GDR/FCCB Issues


Master Circular 2 July 2012 on Foreign Investment in India

STUDENT RESEARCH PROJECT - Depository Receipts: Comparison of Regulatory Frameworks in Taiwan, Brazil, Hong Kong, and India - 2012 - NSE supported


Master Circular on Foreign Investment in India
Includes issue of shares by Indian companies under ADR/GDR

Government of India - Consolidated FDI Policy (under which ADRs/GDRs/FCCBs are issued). Department of Industrial Policy and Promotion, Ministry of Commerce and Industry Promotion,


Takeover norms revised; ADRs at par with domestic shares

The Securities and Exchange Board of India revised takeover norms by bringing ADRs/GDRs with voting rights on par with the domestic shares, which makes an open offer mandatory if 15 per cent stake is bought in a company through these securities with voting rights.
Regarding Voting Rights of ADRS/GDRs RBI clarification
vii)  Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in the case of banking companies will continue to be in terms of the provisions of the Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time to time, as applicable to all shareholders exercising voting rights.
This clause is mentioned in the recent master circular of RBI given below.

The Recent Master Circular

July 2009




20 Jan 2000
RBI gives General permission for issue of ADRs/GDRs
July 20, 2000
GDRs / ADRs issues by FIs
A.P. (DIR Series) Circular No.52
November 23, 2002
03 Feb 2003
ADR/GDR Sale Proceeds can be held in Foreign Currency
October 01, 2004
No RBI Permission for ADR/GDR linked ESOPs
Notification No.FEMA.132/2005-RB dated March 31, 2005
Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2005
31 May 2005
Scheme for issue of ADR/GDR Linked Stock Option for employees of software companies in India
September 05, 2005
FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 Amended
July 2, 2007
Master Circular on Foreign Investment in India
July 2008
Master Circular on Foreign Investment in India
July 2009

SEBI Ciculars Related to ADR/GDRs

December 11 , 2003
Format for submitting monthly report on Two-way fungibility of ADRs/GDRs.
January 5, 2009
Revisions in submission of reports on two way fungibility of ADRs/GDRs

Speculation Regarding ADR/GDR/FCCB Regulations

29th August 2009

Companies May be Allowed to Issue Level-1 ADRs

Level-1 ADRs are sponsored ADRs wherein the shares held by existing investors in the domestic market are gathered and sold in US market through over the counter markets. Secondary trading occurs in the OTC markets. So no fresh capital accrues to the company. But the company's name gets established in the capital market of US.  Such issues are exempt from SEC reporting under Rule 12g3-2(b) of 1934 Act. The exemption is must be requested and obtained and the company has to provide to the SEC in English the same information that was provided to domestic shareholders.

Presently Level-1 ADR issue is not allowed under Indian regulations, but companies and investment bankers are pleading for permitting such issues and they say the present prohibition is a handicap in global financial markets.
(Source: The Economic Times, 29th August, 2009, Page 1 and 17).

Issue of Shares by Indian companies under ADR / GDR  - The Process


Depositary Receipts (DRs) are negotiable securities issued outside India by a Depository Bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian Bank in India. DRs are traded in Stock Exchanges in the US, Singapore, Luxembourg etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In the Indian context, DRs are treated as FDI.

Indian companies can raise foreign currency resources abroad through the issue of ADRs/GDRs, in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time.


The company can issue ADRs/GDRs if it is eligible to issue shares to persons resident outside India under the FDI Scheme. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.

Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier.


ADRs/GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending repatriation or utilisation of the proceeds, the Indian company can invest the funds in -

  • Deposits with or Certificate of Deposit or other instruments offered by banks who have been rated by Standard and Poor, Fitch, IBCA or Moody's etc. and such rating not being less than the rating stipulated by Reserve Bank from time to time for the purpose,
  • Deposits with branch outside India of an authorised dealer in India, and
  • Treasury bills and other monetary instruments with a maturity or unexpired maturity of the instrument of one year or less.

There are no end use restrictions except for a ban on deployment / investment of such funds in Real Estate or the Stock Market. There is no monetary limit upto which an Indian company can raise ADRs / GDRs.


Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. RBI regulations regarding voting rights in the case of banking companies will continue to be applicable to all shareholders exercising voting rights.


Erstwhile OCBs who are not eligible to invest in India through the portfolio route and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies.


The pricing of ADR / GDR issues should be made at a price not less than the higher of the following two averages: 

(i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;

(ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.

The "relevant date" means the date thirty days prior to the date on which the meeting of the general body of shareholders is held, in terms of section 81 (IA) of the Companies Act, 1956, to consider the proposed issue.


The ADR / GDR proceeds can be utilised for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance.

Two-way Fungibility Scheme

A limited Two-way Fungibility scheme has been put in place by the Government of India for ADRs / GDRs.

Under this scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors.

Re-issuance of ADRs /GDRs would be permitted to the extent of ADRs / GDRs which have been redeemed into underlying shares and sold in the Indian market.

Sponsored ADR/GDR issue

An Indian company can also sponsor an issue of ADR / GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs / GDRs can be issued abroad.

The proceeds of the ADR / GDR issue is remitted back to India and distributed among the resident investors who had offered their rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADR / GDR.


Reporting of ADR/GDR Issues

The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the form enclosed in Annex-8, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the form enclosed in Annex-9, to Reserve Bank within 15 days of the close of the calendar quarter.

June 29, 2006

The government has allowed unlisted Indian companies, which have earlier done an ADR or GDR issue, to undertake sponsored issues without getting listed for some time.

The government had earlier banned companies not listed in India from listing overseas, and directed those listed on foreign markets to list in India.

Unlisted companies that have not issued FCCBs, ADRs/GDRs prior to August 31, 2005, would require prior or simultaneous listing on the domestic stock exchanges for issuing FCCBs, ADRs/GDRs, or sponsoring such issues against existing shares under the scheme.

An official release said unlisted companies that had issued FCCBs, ADRs or GDRs before August 31, 2005, and were not making profits would be permitted to sponsor issues against existing shares held by its shareholders.

Such companies would be permitted to comply with listing conditions on domestic stock exchanges within three years of their starting to make profits.

The permission to companies not listed in India to float sponsored issues overseas could  a provision of an exit route to venture capital and private equity investors in such companies.


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