Presentation on GDR Issue

Report
“Global
Depository
Receipts (GDR)
– Compliance,
Procedure and Listing”
What is a GDR?

It is an instrument in the form of a depository
receipt or certificate created by the Overseas
Depository Bank outside India and issued to
Non- resident investor against the issue of
ordinary shares or Foreign Currency
Convertible Bonds of Issuing Company.
Eligibility for Issue of GDRs

An Indian corporate can raise foreign currency
resources abroad through the issue of Global
Depository Receipts (GDRs). Regulation 4 of
Schedule I of FEMA Notification no. 20 allows an
Indian company to issue its Rupee denominated
shares to a person resident outside India being a
depository for the purpose of issuing GDRs.
Conditions for Issue of GDRs


The GDRs are issued 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.
A GDR is permitted by RBI under Automatic
Route subject to the sectoral caps as specified
vide Press Note No.14 (1997 series) dated 8th
October 1997 issued by the Government of
India, Ministry of Industry.
Conditions for Issue of GDRs
contd…




The company not covered under the Automatic route,
would need to obtain prior Government clearance
through FIPB.
There are no end-use restrictions on GDR/ADR issue
proceeds, except for an express ban on investment in
real estate and stock markets.
There is no limit up to which an Indian company can
raise GDRs.
There is no restriction on the number of Euro-Issues to
be floated by a company or a group of companies in a
financial year.
Conditions for Issue of GDRs
contd…

Indian Companies engaged in the following sectors
were 80% of turnover is from these sectors in 3
previous financial years can issue GDRs to their NonResident/Resident Permanent Employees and also to
their subsidiary Companies:
a
Information Technology and Entertainment
Software.
b
Pharmaceuticals
c
Bio Technology

These Companies can also acquire overseas
companies in their respective areas of business
through stock swap as per the guidelines issued by the
government
Conditions for Issue of GDRs
contd…

GDR can be issued in any convertible foreign currency.

The GDRs and the Shares to be represented by such
GDRs will not be offered, sold or delivered within the
United States or to or for the benefit of US persons as
per the United States Securities Act of 1933, as
amended (the "Securities Act") for a period of 40 days
from the date of opening of the Issue.

The GDRs may not be offered or sold directly or
indirectly in the Republic of India ("India") or to, or for the
account or benefit of, any resident of India.
Agencies Involved in the GDR Issue

Lead Manager -The firm should be registered with the
appropriate regulatory authority in Europe/ Singapore or
Japan.

Depository – Is an Overseas Bank authorised by the
Issuing Company to Issue the GDRs.

Listing Agent - Is a person who is responsible for the
listing of the GDRs at any of the recognized Overseas
Stock Exchanges. Generally the Depository also acts as
the Listing Agent.
Agencies Involved in the GDR Issue
contd…

Custodian - It is the domestic Bank who holds the
underlying shares/ Bonds Issued against the GDRs.

Indian Legal Counsel - It is a firm that undertakes the
Legal and Financial Due Diligence of the Issuing
Companies on behalf of the Lead Manager. It also
assists the Company in preparation of the Information
Memorandum/ offer document for submitting it with the
Overseas Stock Exchange.
Agencies Involved in the GDR Issue
contd…

UK Counsel - An overseas legal person who based on
the Due Diligence Report of the Indian Counsel submits
its report to the Overseas Stock Exchange. They also
assist the Lead Manager in preparation of the various
documents such as the Deposit Agreement, Subscription
Agreement and vet the Information Memorandum (IM).

Escrow Agent - An Overseas Bank where an Escrow
Account has to be opened for deposit of the monies
received from Investors against the GDR Issue till the
Final Listing Approval is obtained from the Overseas
Stock Exchange
Procedure for Issue of GDRs






Convene a Board Meeting to approve the proposed
GDR Issue for not exceeding certain value in foreign
currency.
Convene the EGM for the approval of the
shareholders for the proposed GDR Issue under Sec
81(1A) of the Companies Act, 1956.
Identify the Agencies
Convene a Board Meeting to approve the Agencies.
Appoint the Agencies and sign the Engagement
Letters.
The Indian Legal Counsel to undertake the Due
Diligence.
Procedure for Issue of GDRs
contd…




Prepare the first draft of the IM in consultation with the
Indian Legal Counsel and submit the same to various
Agencies for their comments thereon.
Prepare the 2nd/3rd draft of IM incorporating the
comments.
The Listing Agent to submit the IM with the overseas
Stock Exchange for their comments and In principle
Listing Approval.
Simultaneously submit draft IM to the Indian Stock
Exchanges where the Issuing Company’s shares are
listed for In principle approval for listing of the underlying
shares.
Procedure for Issue of GDRs
contd…



Hold Board Meeting to approve the Deposit
Agreement, Subscription Agreement and the Escrow
Agreement.
On receipt of the comments on the IM from the
Overseas and Indian Stock Exchanges incorporate
the same and file the final IM with Overseas Stock
Exchange and obtain Final Listing.
The Issuing Company can open the Issue for the
GDR on receipt of the In principle Listing Approval
from the Overseas and the Indian Stock Exchanges.
Procedure for Issue of GDRs
contd…

Open the Escrow Account with the Escrow Agent and
execute the Escrow Agreement.

In consultation with the Lead Manager to finalize
whether the GDR will be through public or a private
placement,
the number of GDRs to be issued.
the issue price. (the Issue price is normally 5-10 %
discounted prevalent market price of the shares of
the Issuing Company one day prior to the opening
of the GDR Issue.
number of underlying shares to be issued against
each GDR.
Procedure for Issue of GDRs
contd…

On the day of the opening of the Issue execute the
Deposit and Subscription Agreements.

The Issue should be kept open for a minimum period of
3 working days.

Immediately on closing of the Issue convene a Board/
Committee Meeting for allotment of the underlying
shares against the Issue of the GDRs.

Then Deliver the share certificate to the Domestic
Custodian Bank who will in terms of the Agreement
instruct the Overseas Depository Bank to Issue the
GDR to Non Resident Investor against the shares held
by the Domestic Custodian Bank.
Procedure for Issue of GDRs
contd…

On receipt of Listing Approval from Overseas Stock
Exchange submit the required documents for Final In
principle Listing approval from Indian Stock Exchange.

After GDRs are listed the Lead Manager to instruct the
Escrow Agent to transfer the Funds to the Company’s
Account.

The Company can either remit the entire funds or in part
as per its discretion.
Procedure for Issue of GDRs
contd…

On obtaining the Final Approval from Indian Stock
Exchanges admit the underlying shares to the depository
i.e., NSDL and CDSL.

Obtain Trading approval.

Intimate the Custodian for converting the physical shares
into Demat.
Other Reporting Compliances and
Issues

Within 30 days of the closing of the GDR issue, details of
the GDR Issue along with the IM should be submitted to
the Ministry of Finance.
the Registrar of Companies
SEBI

Return of Allotment in Form 2 is to be filed with ROC
within 30 days of Allotment.

Annexure C is to be filed with RBI, Central office within
30 days of closure of the GDR Issue.
Other Reporting Compliances and
Issues

The Company should furnish quarterly return in
Annexure D to the RBI, Central office for every
calendar quarter.

The Issue related expenses (covering both fixed
expenses like underwriting commissions, lead
managers charges, legal expenses and other
reimbursable expenses) shall be subject to a ceiling of
4% in the case of GDR.

The GDR holders shall not have any voting rights.
Conversion and Transfer of GDRs

The holder of the GDR can transfer/sell the GDR in the
Overseas Stock Exchange or request the Depository to
cancel the GDR and release the underlying shares to his
account.

On acquiring the shares, the GDR holder becomes the
member of the Company and he can trade his shares in
the Indian Stock Exchanges.

A registered broker in India may, with the permission of
the custodian purchase shares of an Indian Company on
behalf of a person resident outside India in the
recognized Stock Exchange in India and deposit the
same with the custodian for the purpose of converting
the shares into GDRs.
Conversion and Transfer of GDRs
contd…

the number of shares so purchased shall not exceed
GDRs converted into underlying shares and shall be
subject to sectoral caps as applicable.
THANK YOU

similar documents