ADR

GDR

IDR

ISSUANCE OF DEPOSITORY RECEIPTS

A Depositary Receipt / DR is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities.

DRs are generally issued when a foreign company desires:

to list its already publicly traded shares or debt securities on a foreign stock exchange.

to increase its global trade not only in terms of volumes on local and foreign markets but also results in exchange of information, technology as well as market transparency.

DEPOSITORY RECEIPTS- An Overview

INTERNATIONAL EQUITY MARKET

American Depository Receipts (ADRs)

Global Depository Receipts (GDRs)

INDIAN COMPANIES- TAPPING FOREIGN RESOURCES

Fund Raising from US Financial Markets.

Fund Raising from International Financial Markets other than US

GLOBAL DEPOSITORY RECEIPTS

Depository Receipt or Certificates

Overseas Depository bank outside India

Non- Resident investors

Issuing Indian company

GDRs means any instrument

In the form of

Created by Issued to

Against issue of ordinary shares/ securities

The term GDR is used throughout the globe and designates any foreign entity to trade its securities on an stock exchange outside its home country.

GDRs allow issuers to raise capital in two or more markets simultaneously, thus broadening their shareholder base.

GDRs- Cont..

AMERICAN DEPOSITORY RECEIPTS (ADRs)

ADR is a dollar denominated form of equity ownership in the form of depository receipts in a non- US company.

ADRs are traded on NYSE, NASDAQ and AMEX in the United States 

Who can Invest?? American Institutional Investors American Retail Investors American PFs.

Legal Framework for Issuance of ADR/GDR applicable on Indian Companies

Broadly the following Indian Statues govern the framework of ADR/GDR

Companies Act, 2013 read with applicable Rules;

Foreign Exchange Management Act, 1999;

Foreign Currency Convertible Bonds and Ordinary Shares9 Through Depository Receipt Mechanism) Scheme, 1993 or any modification or re-enactment thereof;

SEBI (Listing Obligation & Disclosure Requirements) Regulations, 2015;

Requisites For Issuance of GDR/ADR

Obtaining prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India.

An Indian company, restrained from accessing the securities market by SEBI are not eligible to issue Ordinary Shares through GDRs/ADRs.

Unlisted Indian Companies issuing Global Depositary shall be required to simultaneously list in the Indian Stock Exchange(s).

Consistent track record of good performance (financial or otherwise) for a minimum period of 3 years

Indian Companies registered in India and engaged in the following sectors, where 80% of turnover is from these sectors of the operation/business of the company in the three previous financial years, are eligible to offer GDRs/ADRs:

• Information Technology and Entertainment Software.• Pharmaceuticals. • Biotechnology. • Any other activities within the knowledge based sector as notified by the Government from time to time.

Requisites For Issuance of GDR/ADR

Limits of foreign investment in the issuing company:

The ordinary shares issued against the GDRs/ADRs shall be treated as direct foreign investment in the issuing company. The aggregate of the foreign investment made either directly or indirectly (through Global Depositary Receipts Mechanism) shall not exceed 51% of the issued and subscribed capital of the issuing company

Taxation on shares issued under Global Depositary Receipt Mechanism

(1) Under the provisions of the Income-tax Act, income by way of dividend on shares will be taxed at the rate of 10 per cent.

(2) All transactions of trading of the Global Depositary Receipts outside India, among non resident investors, will be free from any liability to income-tax in India on capital gains therefrom.

(3) Any transfer of shares upon conversion of Global Depository Receipts will be liable to the provisions of capital gain prescribed under Income Tax Act.

Depository Receipt or Certificates

Domestic Depository bank

Indian Resident investors

Issuing Foreign company

IDRs means any instrument

Issued to

Against issue of ordinary shares/ securities

Foreign Companies Tapping Indian Equity Markets- Indian Depository Receipts (IDRs)

In the form of

Created by

Legal Framework for Issuance of IDR applicable on Foreign (Issuer) Company

Broadly the following Indian Statues govern the framework of IDR:

Companies Act, 2013 read with applicable Rules;

Foreign Exchange Management Act, 1999;

Directives of Reserve Bank of India, if any;

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 or any modification or re-enactment thereof;

SEBI (Listing Obligation & Disclosure Requirements)Regulations, 2015;

ELIGIBILITY FOR ISSUE OF IDRS

Eligibility of Foreign companies to issue IDRs as per Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014 read with Chapter X of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009:

Pre-issue Paid-up capital and free reserves- Min US$ 50 million;Average Market Capitalization(during the last three years) in its parent country- Min US$ 100 million;continuously trading on a stock exchange in its parent or home country (the country of incorporation of such company) – for Min three years immediately preceding years;It has a track record of distributable profits in terms of section 123 of the Act, for at least three out of immediately preceding five years;It fulfills such other eligibility criteria as may be laid down by the SEBI.

The size of an IDR issue shall not be less than Rs. 50 crores

Additional requirements prescribed under Chapter X of SEBI(ICDR) Regulations, 2009

Foreign issuer company shall:

Be Listed in its Home country; Not prohibited to issue securities by any Regulatory body; have Good track record with respect to compliance with

securities market regulator.

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Requirements for investing in IDRs

• IDRs can be purchased by any person who is resident in India as defined under FEMA.

• Minimum application amount in an IDR issue shall be Rs. 20,000/-

• Investments by Indian companies in IDRs shall not exceed the investment limits, if any, prescribed for them under applicable laws;

• In every issue of IDR— (i) At least 50% of the IDRs issued shall be subscribed to by QIBs; (ii) The balance 50% shall be available for subscription by non‐

institutional investors.

Financial Players involved in issue of Depository Receipts

• Listed Indian Issuer company

• Managers to Offer

• Underwriters

• Indian Custodian Bank

• Overseas Depository Bank

• Listed Foreign Issuer Company

• Merchant Banker registered with SEBI

• Underwriters

• Overseas Custodian Bank

• Domestic Depository Bank

GDRs/ ADRs

IDRs

Process Involved in Issuance of ADR/ GDR

Indian Issuer Company

Indian Custodian

Bank

Overseas Depository

Bank

American/ Global

Investors

1. Issuance of Equity shares(in Rs.) in the name of Depository

These shares are deposited with Custodian

3. Issues ADRs/GDRs (in foreign currency, generally dollars) to Foreign Investors

2. Acts as an Agent of Depository and holds physical possession of equity shares.

Depository Agreement

Custodian Agreement

Listing of ADR/ GDR

on American stock

Exchanges or any other Global Stock

Exchange respectively.

Procedure of Issuance of IDRs

Foreign Issuer

Company

Overseas Custodian

Bank

Indian Depository

Bank

Indian Investors

SEBI

1. Prior written approval- At least 90 days before opening of the issue.

ROCIndian Stock

Exchanges

2. Filing of Prospectus

4. Issuance of Equity shares(in Dollars) in the name of Depository

5. Acts as a Agent of Depository

These shares are deposited with Custodian

4. Issues IDRs (in Rs.) to Indian Investors

3. Obtaining In-principle listing Approval

05/01/23

Corporate Professionals Capital Private Limited D-28, South Extension –I, New Delhi-110 049

Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.com

Pavan Kumar Vijay

Thank You