New Delhi: Markets regulator Sebi on Thursday came out with a detailed framework for issuance of depository receipts (DRs), a move that will provide Indian companies increased access to foreign funds.
The new framework would come into force with immediate effect, the Securities and Exchange Board of India (Sebi) said in a circular.
The framework comes after Finance Minister Nirmala Sitharaman in August said that the markets regulator would soon implement the Depository Receipt Scheme 2014.
"This will give Indian companies increased access to foreign funds through American Depository Receipt (ADR)/ Global Depository Receipt (GDR)," she had said.
The liberalised norms for DRs were issued in 2014 but could not be implemented due to concerns raised by Sebi.
A depository receipt is a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository to a domestic custodian and includes global depository receipts (GDRs).
As per the circular, Sebi has issued detailed procedure that needs to be followed for issuance of DRs, besides eligibility criteria for listed companies and obligations of Indian as well as foreign depositories and domestic custodians.
The regulator said that only a listed company is allowed to issue permissible securities or their holders may transfer such securities for the issuance of DRs. However, this is subject to certain requirements.
Listing out eligibility for issuance of DRs, Sebi said that listed firms are allowed to issue such securities provided their promoters, directors and selling shareholders are not barred from the capital markets. Besides, they should not be wilful defaulters or economic offenders.
In addition, existing holders will be eligible to transfer permissible securities for the purpose of issuance of DRs.
Sebi said these restrictions would not apply to the persons or entities who were debarred in the past by the market regulator and the period of debarment is already over as on the date of filing of the document.
For the purpose of an initial issue and listing of DRs, Sebi said that pursuant to 'transfer by existing holders', the firm would provide an opportunity to its equity shareholders to tender their shares for participation in such listing of DRs.
Subsequent issue and listing of DRs may take place subject to the limits approved pursuant to a special resolution in terms of GDR Rules. A company proposing to make a public offer and list on a stock exchange, and also simultaneously plans to issue permissible securities or transfer such securities of existing holders, for the purpose of issue of DRs and listing such DRs on an international bourse, would seek in-principle as well as final approval from the Indian exchange as well as overseas bourse, Sebi noted.
"However, such issue or transfer of permissible securities for the purpose of issue of DRs shall be subsequent to, the receipt of trading approval from the recognised stock exchange for the public offer," it added.
Listed firms will be allowed to issue permissible securities for the purpose of issue of DRs only in permissible jurisdictions and such DRs will be listed on specified international bourses, including Nasdaq, NYSE, Hong Kong Stock Exchange and London Stock Exchange.
Permissible jurisdiction, according to Sebi, includes a jurisdiction which has treaty obligations to share information and cooperate with Indian authorities in the event of any investigation.
Further, Sebi said that companies shall ensure that DRs are issued only with permissible securities as the underlying asset.