The Ministry of Finance ("MOF") has by a recent notification further liberalized the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism), 1993 ("Scheme") by permitting unlisted Indian companies, like those engaged in real estate business, to sponsor an issue of American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs) with an overseas depository against shares held by its shareholders. Prior to the amended Scheme, only listed companies were eligible to sponsor an issue of ADRs/GDRs.
Where one or a group of investors obligate themselves to subscribe to the entire offer, leaving no likelihood of the issue being under-subscribed, would result in a Sponsored issue.
Unlisted companies, issuing Foreign Currency Convertible Bonds (FCCBs), ADRs or GDRs prior to August 31, 2005 but not generating profits are now permitted to sponsor ADR/GDRs, against existing shares held by its shareholders in the domestic market. However, it is mandatory for such unlisted companies to list on domestic stock exchanges, within a period of three years of making profits.
Other unlisted companies, which have not accessed the FCCBs, ADRs, or GDRs route prior to 31st August 2005 for raising capital in the overseas market, would now require prior or concurrent listing in domestic markets for issuance of such FCCBs, ADRs or GDRs, or for the sponsor of depository receipts against existing shares.
Such sponsored issue would however be accessible pari passu to all classes of shareholders of the company trading its shares in the international market.
The issues would also have to be in consonance with the Foreign Direct Investment policy of GOI in addition to the provisions of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified by the Reserve Bank of India.
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