Companies in India which have the eligibility to issue shares to person resident outside India, under the Foreign Direct Investment scheme, are generally allowed to raise equity capital in the international market by issuing rupee denominated shares to a non-resident depository for the purpose of issuing of GDRs/ADRs.
This is possible with the approval of the Ministry of Finance and with reference to the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Deposit Receipt Mechanism) Scheme and in accordance with the guidelines issued by the Central Government in this regard.
A listed Indian company, which does not posses the eligibility to raise funds in the Indian market including a company held by the SEBI, becomes ineligible to issue GDRs/ADRs.
Unlisted companies, which have not tried the GDR/ADR route for raising its capital, would mandatorily be required to possess prior or simultaneous listing in the domestic market.
Unlisted companies which have already tried GDRs/ADRs, need to list in the domestic market on making profit or within 3 years of such issue of GDRs/ADRs, whichever is earlier.
As per the guidelines, the GDRs/ADRs are valued and in consultation with the Lead Manager, are issued on basis of the ratio worked out by the Indian company.
The proceeds from the issue are required to be kept abroad till the time it is utilised. Till such time, the proceeds may be invested as per guidelines prescribed.
Indian companies do not have any restriction on the number or monetary limit of GDR / ADR / FCCB that can be floated in a financial year.
Before seeking the final approval from the Ministry of Finance, a company which is engaged in the manufacture of items covered under the Automatic route would need to obtain prior government clearance through the Foreign Investment Promotion Board, if the FDI after a proposed issue of GDR / ADR / FCCB is likely to exceed the sectoral caps.
Except for the express ban on investment in real estate and the stock markets, there are no end-use restrictions on the proceeds of GDR / ADR issue.
Under the two way fungibility scheme, an Indian stock broker registered with SEBI can purchase shares of an Indian company from the market for conversion to GDRs/ADRs based on instructions from overseas investors.
Reissue of GDR / ADR are permitted to the extent of GDR / ADR which have been redeemed into underlying shares and sold in the Indian capital market.
An Indian company also has the permission of sponsoring an issue of GDRs / ADRs by offering its domestic shareholders a choice to submit their shares back to the company so that consequently, GDR / ADR may be issued abroad.
Within thirty days of closing the GDR / ADR, an Indian company is required to furnish full details of such issue to the Reserve Bank of India.
