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The Tax Publishers CLARIFICATION 8 Permission to access the International capital markets through issue of GDRs/ADRsSource : Press Note [F.No. S-II(25)/CCI-II/89/NRI, dt. 17-8-1998, issued by the Ministry of Finance, Department of Economic Affairs (Investment Division). 1. Indian companies are permitted to access the international capital markets through issue of GDRs/ADRs under the provisions of the 'Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993' and subsequent guidelines on Euro Issues publicised through Press Notes by the Government of India, Ministry of Finance, Department of Economic Affairs. Under the Scheme, GDRs/ADRs are issued by overseas depositories against ordinary shares issued and placed with the domestic custodian by Indian companies. 2. Representations have been received from issuer companies seeking clarification on the eligibility/entitlements of GDR/ADR holders to the rights and bonus issues made by the company and on entitlements of GDR/ADR holders in cases of business reorganisation/mergers/demergers. 3. It is clarified that under the Scheme, a GDR/ADR holder is entitled to hold or transfer GDRs/ADRs, or redeem them into underlying ordinary shares with the option to continue holding underlying shares, and thus has a right to the ordinary shares underlying the GDRs/ADRs. Therefore, if an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, the GDR/ADR holder also matures the same rights or entitlements owing to his rights over underlying ordinary shares. GDR/ADR holders, therefore, are entitled to same bonus and rights issue of shares as any ordinary shareholders of company. Similarly, if ordinary shareholders of a company A become entitled to shares of another company B as a consequence of a genuine business reorganisation, and which is duly approved by the High Court under section 391/394 of the Indian Companies Act, then the GDR/ADR holders of company A also mature the same entitlement to shares of company B. 4. Furthermore, when GDR/ADR holders mature 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 GDRs/ADRs to the ADR/GDR holders. 5. It has, therefore, been decided to allow Indian companies to issue GDRs/ADRs in cases of bonus or right issue of shares or genuine business reorganisations duly approved by the High Court, in accordance with the provisions of the Scheme and the guidelines issued thereunder. Indian companies would be required to apply to the Department of Economic Affairs for obtaining approval for issue of GDRs/ADRs in all these cases. The Department of Economic Affairs would consider such requests on the basis of necessary supporting documents to assess that the proposed GDRs/ADRs issue is on account of the entitlements of GDR/ADR holders as stated above. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers
CLARIFICATION 8
Permission to access the International capital markets through issue of GDRs/ADRsSource : Press Note [F.No. S-II(25)/CCI-II/89/NRI, dt. 17-8-1998, issued by the Ministry of Finance, Department of Economic Affairs (Investment Division).

1. Indian companies are permitted to access the international capital markets through issue of GDRs/ADRs under the provisions of the 'Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993' and subsequent guidelines on Euro Issues publicised through Press Notes by the Government of India, Ministry of Finance, Department of Economic Affairs. Under the Scheme, GDRs/ADRs are issued by overseas depositories against ordinary shares issued and placed with the domestic custodian by Indian companies.

2. Representations have been received from issuer companies seeking clarification on the eligibility/entitlements of GDR/ADR holders to the rights and bonus issues made by the company and on entitlements of GDR/ADR holders in cases of business reorganisation/mergers/demergers.

3. It is clarified that under the Scheme, a GDR/ADR holder is entitled to hold or transfer GDRs/ADRs, or redeem them into underlying ordinary shares with the option to continue holding underlying shares, and thus has a right to the ordinary shares underlying the GDRs/ADRs. Therefore, if an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, the GDR/ADR holder also matures the same rights or entitlements owing to his rights over underlying ordinary shares. GDR/ADR holders, therefore, are entitled to same bonus and rights issue of shares as any ordinary shareholders of company. Similarly, if ordinary shareholders of a company A become entitled to shares of another company B as a consequence of a genuine business reorganisation, and which is duly approved by the High Court under section 391/394 of the Indian Companies Act, then the GDR/ADR holders of company A also mature the same entitlement to shares of company B.

4. Furthermore, when GDR/ADR holders mature 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 GDRs/ADRs to the ADR/GDR holders.

5. It has, therefore, been decided to allow Indian companies to issue GDRs/ADRs in cases of bonus or right issue of shares or genuine business reorganisations duly approved by the High Court, in accordance with the provisions of the Scheme and the guidelines issued thereunder. Indian companies would be required to apply to the Department of Economic Affairs for obtaining approval for issue of GDRs/ADRs in all these cases. The Department of Economic Affairs would consider such requests on the basis of necessary supporting documents to assess that the proposed GDRs/ADRs issue is on account of the entitlements of GDR/ADR holders as stated above.