Government of India have been permitting Indian companies to issue Equity and Equity related instruments to international investors in the form of Global Depository Receipts (GDRs) and Convertible Bonds. A detailed Notification was also issued on 12-11-1993 outlining the scheme for the issue of Foreign Currency Convertible Bonds (FCCBs) and ordinary shares (through Depository Receipt Mechanism). Government have since reviewed the working of the scheme and the following further guidelines have been formulated in this regard :
(a) For the present it is proposed to follow a restrictive policy towards Foreign Currency Convertible Bonds since such Bonds form part of the countrys external debt till their conversion into equity. However, companies will be allowed on merits to issue FCCBs as part of a programme of restructuring of external debt which helps to lengthen maturity and soften terms.
(b) Euro Issues will be treated as direct foreign investments. Accordingly, a company contained in Annexure III of the New Industrial Policy of 1991 whose direct foreign investment after a proposed Euro Issue is likely to exceed 51 per cent, or which is implementing projects not predominantly contained in Annexure III, would need to obtain prior FIPB clearance before final approval for the Euro Issue is given by the Finance Ministry.
(c) For the purpose of ensuring that as many companies as possible avail of this scheme, only one issue per company in a financial year will be permitted with a minimum gap of twelve months between two issues by the same company and not more than two issues will be permitted for any group of companies in a financial year.
(d) Both the in-principle and final approvals will be valid only for three months from the dates of their respective issue.
(e) Requests for retention of the Issue proceeds abroad will be considered on specific application, for import of capital goods, retiring foreign currency debts, capitalising Indian joint ventures, etc., and projects abroad.
(f) GDR issues would be permitted only for the following end-use to be incurred within one year from the date of issue :
(i) Financing capital goods imports;
(ii) Financing domestic purchase/installation of plant, equipment and buildings;
(iii) Pre-pa yment or scheduled repayment of earlier external borrowing;
(iv) Making investments abroad where these have been approved by competent authorities;
(v) A margin of 15 per cent of the total proceeds of an issue for other general corporate restructuring uses;
(g) Companies would be required to submit quarterly statement of utilisation of funds duly certified by their auditors;
(h) The policy and guidelines for Euro Issues will be subject to review every three months.