Issues by Indian Companies
10B.10 (i) In terms
of the Guidelines issued by the Government of India, vide Ministry of Finance
Notification No.S-II(25)CCI-II/89/NRI dated 12 November 1993 (as amended), Indian
companies are permitted to raise foreign currency resources through issue of
Foreign Currency Convertible Bonds (FCCBs) and/or issue of ordinary equity shares
through Global Depository Receipts (GDRs)/American Depository Receipts (ADRs)
to foreign investors i.e. institutional investors or individuals (including
NRIs) residing abroad. Applications for necessary permission should be made
to the Government of India, Ministry of Finance, Department of Economic Affairs,
New Delhi. After obtaining the necessary approval from the Government, the Indian
company should submit an application to the General Manager, Foreign Investment
Division, Exchange Control Department, Reserve Bank of India, Central Office,
Mumbai - 400 001 enclosing a copy of the application made to the Government
and the in-principle/final approval granted by the Government, for necessary
permission under FERA 1973 for issue/acquisition of shares to/by non-residents,
remittance of issue expenses, opening of foreign currency accounts, etc.
(ii) The FCCBs/GDRs/ADRs
issued by Indian companies to non-residents have free convertibility outside
India. As regards transfer of shares (on conversion of GDRs/ADRs into shares)
in favour of residents, the non-resident holder of GDRs/ADRs should approach
the Overseas Depository bank with a request to the Domestic Custodian bank to
get the corresponding underlying shares released in favour of the non-resident
investor for being sold by the non-resident or for being transferred in the
books of the issuing company in the name of the non-resident. Reserve Bank has
granted general exemption vide its Notification No.F.E.R.A.185/98-RB dated 19th
August 1998, permitting transfer of shares from non-residents to residents,
provided (a) such shares were released by the Indian custodian of a GDR/ADR
issue against surrender of GDRs/ADRs by the non-resident concerned and (b) the
sale is made on a stock exchange or the shares are offered for sale in terms
of an offer made under the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeover) Regulations, 1997. Authorised dealers may
allow remittance of sale proceeds of such underlying shares on verification
of the following documents:
Order in original from the Domestic Custodian bank of the GDR/ADR issue.
(b) Sale note
from a SEBI registered broker/merchant banker showing the number of shares transferred
and the amount of sale proceeds.
(c) An undertaking/Accountant's
certificate regarding payment of Income-tax (cf.paragraph 3B.10).
dealers may also allow the non-resident transferor to keep the above mentioned
shares in their safe custody till the sale of the shares is effected and to
open a non-resident non-interest bearing account to collect the sale proceeds
of the shares. A statement giving details, such as the name of the company whose
shares have been sold, number of shares sold and the amount remitted should
be submitted to the General Manager, Foreign Investment Division, Exchange Control
Department, Reserve Bank of India, Central Office, Mumbai 400 001 within a period
of 7 days from the date of effecting the remittance.
NOTE : The
above general permission will be applicable for transfer of shares underlying
GDRs/ADRs through stock exchange or under an offer made under the Securities
and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations 1997. All other cases including transfer of shares, on conversion
of FCCBs into shares in favour of residents, will require approval of Reserve
Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.193/99-RB
dated 16th March 1999 permitting, (a) the non-resident holders of ADRs/GDRs
issued by a company registered in India to acquire the underlying shares against
surrender of ADRs/GDRs held by them when such shares are released by the Indian
Custodian of the ADR/GDR issue, and (b) the company/depository concerned to
enter in its register or books an address outside India of the non-resident
holder in respect of the underlying shares issued against surrender of ADRs/GDRs.
(iii) In terms
of Government guidelines, issue proceeds are required to be kept in foreign
currency and can be utilised only for certain purposes such as for meeting the
cost of expansion/diversification /acquisition/import of new plants and machinery,
repayment of foreign currency loans, etc. as approved by the Government. Pending
deployment of funds for approved purposes, the Indian company is allowed to
keep the foreign currency funds abroad with foreign banks ( which are rated
for short-term obligations as A1 + by Standard & Poor or P1 by Moody's )
or with branches of Indian banks abroad as deposits, or to invest them abroad
in treasury bills and other monetary instruments with maturity not exceeding
one year. Funds raised through GDRs/ADRs, FCCBs and ECBs will also be allowed
to be invested in rated certificates of deposit abroad. The issue proceeds can
also be kept in foreign currency accounts with authorised dealers/public financial
institutions in India authorised to deal in foreign exchange. It will accordingly
be in order for authorised dealers/public financial institutions to accept foreign
currency deposits from Indian companies out of Euro Issue proceeds subject to
the following conditions :
(a) The foreign currency
deposits would carry interest at a rate not exceeding LIBOR for the respective
period for which the deposit is accepted.
b) Authorised dealers/public
financial institutions with whom the foreign currency deposits are kept should
not swap the foreign currency for rupees but use the amounts for on-lending
in foreign currency to eligible clients.
c) Authorised dealers
may also invest surplus foreign currency out of such Euro Issue proceeds as
permitted in paragraph 5B.9 subject to the condition indicated in (b) above.
d) Authorised dealers/public
financial institutions accepting the foreign currency deposits would be eligible
to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR
for lending out of such funds.
e) Authorised dealers
will have to comply with the requirements of CRR/SLR as laid down by Reserve
Bank from time to time.
f) The deposits can
be converted into Indian rupees only as and when expenditure for approved end
uses (including upto a maximum of 15% of the proceeds earmarked for general
corporate restructuring) are incurred by the Indian company.
g) Authorised dealers/public
financial institutions accepting such deposits as also the Indian company, as
the case may be, should comply with the conditions stipulated by Government
of India in their approval letters for such issues.