Article

Reporting Issue of Shares
August 24 , 2012

Advance Reporting

An Indian company issuing shares or convertible debentures as bonus, rights or as stock options to persons resident outside India directly or on amalgamation/ merger with an existing Indian company, in accordance with these Regulations, should submit to Reserve Bank the details of advance remittance, not later than 30 days, from the date of receipt of the amount of consideration, giving details regarding -

  1. Name and address of the foreign investors,
  2. Date of receipt of funds and their Rupee equivalent,
  3. Name and address of the authorized dealer through whom the funds have been received, and
  4. Details of Government approval, if any.

Reporting Issue Of Shares

After issue of shares, the Indian company has to file a report in Form FC-GPR, not later than 30 days from the date of issue of shares, with the Regional Office of RBI under whose jurisdiction the registered office of the company is situated.

Issue Of Shares By Indian Companies Under ADR/GDR

An Indian corporate can raise foreign currency resources abroad, through the issue of American Depository Receipts (ADRs) or 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 Global Depository Receipts (GDRs) and/ or American Depository Receipts (ADRs), subject to the conditions that –

  1. The ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds (FCCB) and Ordinary Shares (OSS) (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time-to-time.
  2. The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India, to issue such ADRs and/or GDRs, or is eligible to issue ADRs/ GDRs in terms of relevant scheme in force or notification issued by the Ministry of Finance and

Is not otherwise ineligible to issue shares to person's resident outside India, in terms of these regulations.

These instruments are issued by Depository abroad and listed in the overseas stock exchanges like NASDAQ. The proceeds so raised have to be kept abroad till actually required in India. There are no end use restrictions, except for a ban on deployment or investment of these funds in Real Estate and Stock Market. There is no limit upto which an Indian company can raise ADRs/GDRs. However the Indian company has to be otherwise eligible to raise foreign shareholding after issue should be in compliance with the FDI policy.

The ADR/GDR can be issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager of the issue. The Indian company will issue its Rupee denominated shares in the name of the Overseas Custodian in India. On the basis of the ratio worked out and the Rupee shares kept with the domestic Custodian, the Depository will issue ADRs/ GDRs abroad.

In order to bring the ADR/GDR guidelines in alignment with SEBI's guidelines on domestic capital issues, the Government of India has issued the following additional guidelines on ADRs/GDRs under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme:

 1. For listed companies:

Eligibility of issuer: An Indian Company which is not eligible to raise funds from the Indian Capital Market, including a company which has been restrained from accessing the securities market by the SEBI, will not be eligible to issue (i) Foreign Currency Convertible Bonds (FCCBs), and (ii) Ordinary shares through Global Depository Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993.

Eligibility of Subscriber: Erstwhile Overseas Corporate Bodies (OCBs) who are not eligible to invest in India through the portfolio route and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to issue (i) Foreign Currency Convertible Bonds (FCCBs), and (ii) Ordinary shares through Global Depository Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993.

Pricing: The pricing of ADR/ GDR/ FCCB issues should be made at a price, not less than the higher of the following two averages: (a)The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange, during the six months preceding the relevant date; (b)The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange, during the two weeks preceding the relevant date;The 'relevant date' means the date 30 days prior to the date on which the meeting of the general body of shareholders is held, in terms of Section 81 (IA) of the Companies Act 1956, to consider the proposed issue.

Voting rights:  Voting rights shall be as per the provisions of Companies   Act 1956, and in manner in which restrictions on voting rights imposed on ADR/ GDR issues shall be consistent with the Company Law provisions. RBI regulations regarding voting rights in the case of banking companies will continue to be applicable to all shareholders exercising voting rights.

2. For unlisted companies:

Unlisted companies, which have not yet accessed the ADR / GDR / FCCB route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue (i) Foreign Currency Convertible Bonds and (ii( Ordinary Shares through Global Depository Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993.

It has been clarified by the Government that unlisted companies, which have already issued ADRs/ GDRs / FCCBs in the international market, would mow require to list in the domestic market on making profit beginning the financial year 2005-06 or within 3 years of such issue of ADRs/ GDRs/ FCCBs, whichever is earlier.

A limited Two-way Fungibility Scheme has been put in place by the Government of India for ADRs/ GDRs. Under this scheme, a stock broker in India, registered with SEBI, can purchase the shares from the market, for conversion into ADRs/ GDR. Re-issuance of ADRs/ GDRs, which have been redeemed into underlying shares and sold in the domestic market.

An Indian company can also sponsor an issue of ADR/ GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on, the basis of such shares, ADRs/ GDRs can be issued abroad. The proceeds of the ADR / GDR issue is remitted back to India and distributed among the resident investors, who had offered their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India, by the shareholders who have tendered such shares for conversion into ADR/ GDR.

The ADR/ GDR/ FCCB proceeds may be utilized in the first stage acquisition of shared in the disinvestment process and also in the mandatory second stage offer to the public in view of their strategic importance.

Ads have been permitted to allow Indian companies to prepay the existing FCCB, subject to certain conditions.

Reporting of Such Shares

The Indian company issuing ADRs/ GDRs shall furnish to the Reserve Bank, full details of such issue in the form specified within 30 days from the date of closing the issue. The company should also furnish a quarterly return in the form, specified to Reserve Bank within 15 days of the close of the calendar quarter.

Issue Price

Price of shares issued to persons resident outside India, under FDI scheme would be worked out on the basis of SEBI guidelines in case of listed shares. In other cases valuation of shares would be done by a Chartered Accountant in accordance with the guidelines issued by the erstwhile Controller of Capital Issues.

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