Global Depository Receipts (GDRs): GDR means any instrument in the form of a depository receipt or certificate (by whatever

name called) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company. A GDR usually represents one or more shares or convertible bonds of the issuing company. A holder of a GDR is given an option to convert it into number of shares/bonds that it represents after 45 days from the date of allotment. GDR is an instrument denominated in dollars or in some other freely convertible foreign currency. The shares or bonds which GDR is entitled to get on conversion are denominated in Indian rupees. Once GDR is converted, the shares issued on conversion are listed on any one or more of the Indian Stock Exchanges. Till conversion, the GDR does not carry any voting right. There is no lock-in period for GDRs. GDRs are issued by the Indian companies to an intermediary abroad called Overseas Depository Bank. The equity shares/bonds representing the GDRs are registered in the name of the Overseas Depository Bank and the relative Share Certificates/Bond Certificates are delivered to another intermediary called the Domestic Custodian Bank who acts as the agent of the Overseas Depository Bank in India
An American depositary receipt (ADR) is a negotiable security that represents securities of a non-US company that trade in the US financial markets. Securities of a foreign company that are represented by an ADR are called American depositary shares (ADSs). Shares of many non-US companies trade on US stock exchanges through ADRs. ADRs are denominated and pay dividends in US dollars and may be traded like regular shares of stock. Over-the-counter ADRs may only trade in extended hours. The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with theSecurities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies [1] to raise funds from the Indian securities Markets. The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares (like bonus, dividends etc.) would accrue to the depository receipt holders in India.

Guidelines for ADR/GDR Issues 1. With a view to liberalizing the operational guidelines of ADR/GDR issues, given the fact that investments through GDR/ADR being risk capital, tract-record scrutiny process for ADR/GDR dispensed with. 2. Indian companies raising funds by issue of ADRs/GDRs through registered stock exchanges is allowed under Automatic Route, and the prior approval of Ministry of Finance, Department of Company Affairs is not required. 3. Private placement of ADRs/GDRs would also be eligible for automatic approval provided the issue is lead managed by an Investment Banker 4. Automatic Route for ADR/GDR issue would also cover issue of Employee stock options by Indian Software/IT companies. 5. Issue of ADRs/GDRs arising out of business reorganization/merger/demerger would also be governed by Automatic Route. 6. In all cases of Automatic Approval, the companies are required to obtain other approvals under FDI policy, Companies Act, and approvals for overseas investment/business acquisition etc. before ADR/GDR issue. 7. The issuer company would need to obtain RBI approval under the provisions of FEMA prior to the overseas issue. RBI will be issuing necessary guidelines 8. The companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end-uses. 9. The retention and deployment of funds abroad would be as prescribed by RBI. 10. The issue 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 case of GDRs and 7% in case of listing on US Stock Exchanges. 11. Issue expenses beyond the ceiling would need the approval of RBI. 12. The FCCBs means bonds subscribed by nonresident in foreign currency and convertible into equity shares of the issuing company, either in part or whole, on the basis of equity related warrants attached to debt instrument. Prepayment of FCCB is permitted as per RBI guidelines. 13. 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 Depository and will keep in the custody of the Domestic Custodian in India. On the basis of the ratio worked out and the rupee shares kept with the Domestic Custodian, the overseas Depository will issue ADRs/GDRs abroad. 14. Foreign investment through ADRs/GDRs is treated as Foreign Direct Investment. Indian companies are allowed to raise equity capital in the international market through issue of ADRs/GDRs. These are not subject to any ceiling on investment.

15. There is no restriction on the number of ADRs/GDRs/FCCBs to be floated by a company or a group of companies in a financial year. There is no such restriction because a company engaged in the manufacture of items covered under Automatic Route is likely to exceed the percentage limits under Automatic Route, whose foreign direct investment after a proposed ADRs/GDRs/FCCBs is likely to exceed 50 per cent/51 per cent/74 per cent as the case may be. 16. There is no end use restrictions on ADRs/GDRs issue proceeds, except for an express ban on investment in real estate and stock markets. The FCCB issue proceeds need to conform to external commercial borrowing and use requirements. In addition, 25 per cent of the FCCB proceeds can be used for general corporate restructuring. 17. ADRs/GDRs are equity instruments and there is no repayment liability on the issuing company. Unlike a commercial borrowing or a Foreign currency convertible bond which carries a repayment liability on the company. ADRs/GDRs are full risk equity. Therefore, end-use restrictions on ADR/GDR issue proceeds are removed. 18. If an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, the ADR/GDR holder also acquires the same rights or entitlements owing to his rights over underlying ordinary shares. ADR/GDR holders, therefore, are entitled to same bonus or rights issue of shares, as any ordinary shareholders of the company. 19. When ADR/GDR holders acquire an entitlement to shares in a company, the company would need to issue and place ordinary shares with the Domestic Custodian against which the Overseas Depository would issue corresponding ADRs/GDRs to the ADR/GDR holders. 14. A listed company may transfer an issue of ADRs/GDRs with an Overseas Depository against shares held by its shareholders. Such a facility would be available pari passu to all categories of shareholders of the company whose shares are being sold in the ADR/GDR market overseas. 15. 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 ADR/GDR. Re-issuance of ADRs/GDR would be permitted to the extent of ADRs/GDRs which have been redeemed into underlying shares and sold in the domestic market. 16. 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 foreign currency accounts in India by the shareholders who have tendered such shares for conversion into ADR/GDR.

34.11 Issue of ADRs/GDRs 1 Depository Receipts (DRs) are a type of negotiable (transferrable) financial security that can be traded on a local stock exchange, representing ownership of shares in companies of other countries.

2. As a part of globalizing the economy, the government undertook two major steps - that of allowing Foreign Institutional Investors (FIIs) to invest in the Indian capital market and permitting Indian companies to float their stock in foreign markets. 3. An Indian company can raise finances from other countries investors by issue of any of the instruments like American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). 4. An ADR is a stock which can be traded in the United States, representing a specified number of shares of a foreign company. 5.ADRs are bought and sold on the American stock exchanges. A foreign company might make an issue in U.S. by issuing securities through appointment of U.S. bank as depository. 6. By keeping the securities issued by a foreign company, the U.S. bank will issue receipts called American Depository Receipts (ADRs) to the investors. 7. It is a negotiable instrument recognizing a claim on foreign security. 8 Depository receipts that are traded on the stock exchanges in other parts of the globe are called 'Global Depository Receipts' (GDRs). 9. These are commonly listed on European stock exchanges, such as the Luxembourg and London stock exchanges or on the Asian stock exchanges such as the Dubai and Singapore stock exchanges. 10. The issue of ADRs/GDRs are governed by the provisions of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993. 34.13 Salient Features of ADRs/GDRs 1. Track Record - The issuer company seeking permission for raising foreign funds by issue of ADRs/GDRs would be required to have a consistent track record of good performance (financial or otherwise) for a period of at least three years. However, issuer companies making ADR/GDR issues to fund export projects or infrastructure projects (in sectors such as power, oil exploration, telecommunication, railways etc.) need not have a past track record of financial performance. 2. Prior Approval - Indian companies raising funds by issue of ADRs/GDRs through recognized stock exchanges is allowed under 'automatic route' and prior approval of Ministry of Finance, Department of Company Affairs is not required. 3. Private Placement - The private placement of ADRs/GDRs would also be eligible for an automatic approval provided the issue is lead managed by an investment banker. 4. Automatic Route - The automatic route for ADRs/GDRs issue would also cover issue of Employee Stock Options by Indian software/IT companies. Issue of ADRs/GDRs arising out of business reorganization/ merger/demerger would also be governed by automatic route. 5. Approvals under FDI Policy - In all cases of automatic approval, the companies are required to obtain approvals under FDI policy, Companies Act, and approvals for overseas investment/business acquisition etc. before ADR/GDR issue. 6. RBI Approval - The issuer company would need to obtain RBI approval under the provisions of FEMA

prior to the overseas issue. 7. Retirement of Proceeds Abroad - The companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end-users. The retention and deployment of funds abroad would be as prescribed by RBI. 8. Ceiling on Issue Expenses - The issue 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 case of GDRs and 7% in case of listing in US stock exchanges. Issue expenses beyond the ceiling would need the approval of RBI. 9. Conversion Ratio - The ADRs/GDRs can be issued on the basis of the ratio worked out by the Indian company in consultation with the lead manager of the issue. 10.Foreign Direct Investment - Foreign investment through ADRs/GDRs is treated as FDI. Indian companies are allowed to raise equity capital in the international market through issue of ADRs/GDRs. These are not subject to any ceiling on investment. 11. No. of Issues - There is no restriction on the number of ADRs/GDRs to be floated by a company or group of companies in a financial year. 12.End Use Restrictions - There is no end use restrictions on ADRs/GDRs issue proceeds, except for an express ban on investment in real estate and capital markets. 13. No Repayment Liability - ADRs/GDRs are equity instruments and there is no repayment liability on the issuing company and these receipts are full risk equity. Therefore, end use restrictions on ADRs/GDRs issue proceeds are removed. 14. Right or Entitlement - If an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, ADR/GDR holder also acquires the same rights or entitlements like bonus shares, rights shares etc. 34.15 Benefits of ADR/GDR Issue to Overseas Investors 1. Assured liquidity due to presence of market makers. 2. Convenience to investors as ADRs are quoted and pay dividends in U.S. dollars, and they trade exactly like other U.S. securities. 3. Cost-effectiveness due to elimination of the need to custodize underlying securities in India. 4. Overseas investors will not be taxed in India in respect of capital gains on transfer of ADRs to another nonresident outside India. 5. The identity of ADR/GDR holders is kept confidential since they are freely transferable. 6. Quick settlement of ADRs/GDRs due to the existence of international systems like Euroclear and Cedel in Europe and the Depository Trust Company in the U.S. 7. ADRs/GDRs are designated in foreign currency, which is acceptable to global investors. 8. Global investors/holders of ADRs/GDRs don't need to be registered with SEBI.

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