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Indian companies free to float ADR, GDR

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CIOL Bureau
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BANGALORE: Indian companies have been permitted to make private and public international equity offerings without prior government approval. Private placement of American/Global Depository Receipts (ADR/GDR), will also be eligible for the automatic approval, provided the issue is lead-managed by an investment banker registered with the US Securities and Exchange Commission, or under Financial Services Act in the UK, or the appropriate regulatory authority in Europe, Singapore and Japan.

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However, the easier norms will not apply to FCCB (foreign currency convertible bond) issues, which will continue to be governed by the existing guidelines. 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.

Automatic route for ADR/GDR issue would also cover issue of employee stock options by Indian software companies and other firms in the infotech sector in conformity with the guidelines issued in this regard. Issue of ADRs/GDRs arising out of business reorganisation/merger/demerger would also be governed by the norms for the automatic route, subject to the guidelines issued by the finance ministry.

ADRs/GDRs are reckoned as foreign direct investment (FDI) and hence, these will have to conform to the existing policy and will be allowed only in permissible areas. 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 utilized for overseas investments) etc. would need to be obtained by the company before the ADR/GDR issues.

The issuer company would also need to obtain the RBI's approval under the provisions of Foreign Exchange Regulation Act (Fera)/Foreign Exchange Management Act (Fema) prior to the overseas issue. The existing provisions under the ADR/GDR guidelines relating to retention of funds abroad/repatriation, end uses would continue to be applicable, the release added.

As per the new guidelines, after completing the transactions, the companies would be required to furnish full particulars to finance ministry and RBI within 30 days of completion of such transactions. On December 27, the government had opened the automatic approval route for ADR/GDR issues by infotech firms planning acquisitions abroad. Software companies also no longer have to seek approval from either the Special Committee for Overseas Investment or the Government of India for floating ADRs/GDRs, provided the value of the acquisitions proposed in a year is below $100 million and the acquiring companies have already floated ADRs/GDRs in the past.

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