Companies (Issue of Global Depository Receipts) Rules-2020

The Central Government has amended the Companies (Issue of Global Depository Receipts) Rules, 2014 in a new notification dated 13

th February 2020. The new amended rules will now be called Companies (Issue of Global Depository Receipts) Amendment Rules 2020. This article will explain the amendments made in the companies rules.

Global Depository Receipt

A depository receipt is a foreign currency-denominated instrument. It is listed on international exchange and is issued by a foreign depository to a domestic custodian. As per Section 2(44) of the Companies Act, 2013, Global Depository Receipt (‘GDR’) means any instrument in the form of a depository receipt, created by a foreign depository outside India and authorised by a company making an issue of such depository receipts. Basically, it gives Indian companies increased access to foreign funds through the GDRs because it helps in raising funds in foreign currencies that are listed and traded in

foreign exchanges.

How are GDRs issued?

GDRs are issued in three steps:

Indian companies issue their equity shares (in Indian currency) to an overseas depository bank, through a domestic custodian bank.
The domestic custodian bank then acts as the agent of overseas depository bank and keeps the equity shares in its custody.
The overseas depository bank then issues GDRs (in foreign currency) against the equity shares to the overseas investors.

Features of GDRs

With reference to Para 7 of the Depository Scheme, 2014, issued by the Department of Economic Affairs:

The foreign depository is entitled to exercise voting rights, associated with the permissible securities.
The shares of a company that underlying the depository receipts will form part of the public shareholding of the company under the Securities Contracts (Regulations) Rules 1957 and such depository receipts are listed on an international exchange.
For cases other than those mentioned under sub-paragraph 2, shares of the company underlying depository receipts should not be included in the total shareholding and in the public shareholding while computing the public shareholding of the company.
A holder of depository receipts that are issued based on equity shares of a company shall have the same duties as if it is the holder of the underlying equity shares.

Latest Amendment

The current notification has announced minor amendments and insertions in the old rule. The main additional specifications are:

The depository receipts may be issued as a public or private offering or any other manner that is legal and can be traded in the trading platform of that country’s jurisdiction.
Remittance of proceeds of depository receipts may be made to an International Financial Services Centre Banking Unit and funds should be utilised as per RBI instructions.

Please access below the latest amendment for more details:

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Frequently Asked Questions

Common questions about Companies GDR Rules.

GDRs or Global Depository Receipts are foreign currency-denominated instruments that are listed and traded on international exchanges. They are issued by a foreign depository to a domestic custodian, representing the company's underlying equity shares. GDRs provide Indian companies with increased access to foreign funds by allowing them to raise funds in foreign currencies.

GDRs are issued in three steps: First, the Indian company issues equity shares (in Indian currency) to an overseas depository bank through a domestic custodian bank. The domestic custodian bank then acts as the agent and keeps the equity shares in its custody. Finally, the overseas depository bank issues GDRs (in foreign currency) against the equity shares to overseas investors.

According to the Depository Scheme, 2014, the foreign depository is entitled to exercise voting rights associated with the underlying securities. The shares underlying the GDRs form part of the public shareholding of the company, and the GDRs are listed on international exchanges. Additionally, GDR holders have the same duties as if they were holders of the underlying equity shares.

The latest amendments, introduced in the Companies (Issue of Global Depository Receipts) Amendment Rules 2020, specify that GDRs can be issued as a public or private offering or any other legal manner and can be traded on the trading platform of the country's jurisdiction. Additionally, the proceeds from GDRs can be remitted to an International Financial Services Centre Banking Unit and must be utilized as per RBI instructions.

Indian companies issue GDRs to gain access to foreign funds and tap into international capital markets. By issuing GDRs, companies can raise funds in foreign currencies, which can be beneficial for various purposes, such as financing expansion plans, acquisitions, or other business operations.

The domestic custodian bank acts as the agent of the overseas depository bank in the issuance of GDRs. The Indian company issues equity shares to the overseas depository bank through the domestic custodian bank, which keeps the equity shares in its custody.

According to the Depository Scheme, 2014, the foreign depository is entitled to exercise voting rights associated with the underlying securities (equity shares) of the Indian company.

Yes, the shares of a company that underlie the GDRs form part of the public shareholding of the company under the Securities Contracts (Regulations) Rules 1957, and the GDRs are listed on international exchanges.

Yes, according to the latest amendment, the remittance of proceeds from GDRs can be made to an International Financial Services Centre Banking Unit, but the funds should be utilized as per RBI instructions.

Issuing GDRs provides several benefits for Indian companies, such as access to foreign funds and international capital markets, diversification of investor base, enhanced visibility and prestige in global markets, and the ability to raise funds in foreign currencies, which can be advantageous for various business purposes.