SEBI Framework for issue of depository receipts by listed companies

The Securities and Exchange Board of India (SEBI) vide a circular dated 10th October 2019 has put in place a framework for domestic companies to raise capital by issue of Depository Receipts (DRs). A depository receipt is a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository to a domestic custodian. The move will allow listed Indian companies to issue either equity, or debt, to investors on the overseas stock exchanges such as NYSE, Nasdaq and Hong Kong Stock Exchange. The key highlights of the Circular are:

  1. Listed company will be eligible to issue Permissible Securities, for the purpose of issue of DRs, if the Listed Company, any of its promoters, promoter group or directors or selling shareholders are not debarred from accessing the capital market by SEBI and any of the promoters or directors of the Listed Company is a promoter or director of any other company which is not debarred from accessing the capital market by SEBI and etc.
  2.  Listed Company will be permitted to issue Permissible Securities or transfer Permissible Securitieting holders, for the purpose of issue of DRs, only in Permissible Jurisdictions and said DRs will be listed on any of the specified International Exchange(s) of the Permissible Jurisdiction.
  3.  Listed Company should ensure compliance with extant laws relating to issuance of DRs, including, requirements prescribed in this Circular, the Companies Act, 2013, the Foreign Exchange Management Act, 1999, Prevention of Money-Laundering Act, 2002,and rules and regulations made thereunder. For this purpose, Listed Company may also enter into necessary arrangements with Custodian, Indian Depository and Foreign Depository.
  4.  Permissible holder means a holder of DR, including its Beneficial Owner(s), satisfying the following conditions: (a) who is not a person resident in India; (b) who is not a Non-Resident Indian (NRI).
  5.  Listed Company should ensure that the agreement entered between the holder of DRs, the Listed Company and the Depository provides that the voting rights on Permissible Securities, if any, should be exercised by the DR holder through the Foreign Depository pursuant to voting instruction only from such DR holder.

Thus, SEBI has not allowed unlisted companies to issue DRs and DRs issuances can take place only on the recognized global exchanges. This framework will give Indian companies increased access to foreign funds through American Depository Receipt (ADR)/ Global Depository Receipt (GDR). The move is aimed at excluding smaller platforms, which in the past have been prone to manipulation.

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