SEBI Comes Out With Framework For Issuance Of Depository Receipts

The Securities and Exchange Board of India on Thursday came out with a detailed framework for issuance of depository receipts, a move that will provide Indian companies increased access to foreign funds.

The new framework would come into force with immediate effect, the markets regulator 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/ Global Depository Receipt,” she had said.

The liberalised norms for depository receipts 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.

As per the circular, SEBI has issued detailed procedure that needs to be followed for issuance of depository receipts, 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 depository receipts. However, this is subject to certain requirements.

Listing out eligibility for issuance of depository receipts, 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 depository receipts.

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 depository receipts, 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 depository receipts.

Subsequent issue and listing of depository receipts 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 depository receipts and listing such depository receipts 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 depository receipts 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 depository receipts only in permissible jurisdictions and such depository receipts will be listed on specified international bourses, including Nasdaq, New York Stock Exchange, 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 depository receipts are issued only with permissible securities as the underlying asset.

"Listed company shall ensure that the aggregate of permissible securities which may be issued or transferred for the purpose of issue of depository receipts, along with permissible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such permissible securities under the applicable regulations of FEMA (Foreign Exchange Management Act)," it said.

SEBI also said that listed companies, through an intermediary, would file with the regulator and the stock exchange a copy of the initial document for initial issue of depository receipts. The regulator will forward its comments, if any, to the stock exchange within a period of seven working days from the receipt of the document.

In case no comments are issued by SEBI within such period, it would be deemed that the regulator does not have comments to offer.

The stock exchange will take into consideration the comments of SEBI while granting in-principle approval to the listed company and decide on the approval within 15 working days of receipt of application. Further, final document for such initial issue will be filed with stock exchange and SEBI for record purpose.

"Listed company shall ensure that any public disclosures made by the listed company on international exchange(s) in compliance with the requirements of the permissible jurisdiction where the depository receipts are listed or of the international exchange(s), are also filed with the recognized stock exchange as soon as reasonably possible but not later than 24 hours from the date of filing," SEBI said.

In case of a simultaneous listing of such securities on Indian stock exchange pursuant to a public offer and depository receipts on the overseas bourse, SEBI said the price of issue of depository receipts by foreign depository should not be less than the price for the public offer to domestic investors.

SEBI said that Indian depositories, in consultation with each other, will develop a system to ensure that aggregate holding of depository receipts holders along with their holding, if any, through offshore derivative instruments and holding as a foreign portfolio investment belonging to same investor group shall not exceed the limit on foreign holding under the FEMA and applicable SEBI regulations.