Companies (Issue of Global Depository Receipts) Rules
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 13th 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.
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:Companies-(Issue-of-Global-Depository-Receipts)-Amendment-Rules-2020