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Under Section 115 AC of the I.T. Act 1961, which is applicable to non-
resident investors for ADR/GDR offering against issue of fresh
underlying shares would extend to non-resident investors investing
in foreign exchange in ADRs/GDRs issued against disinvested existing
shares.
Divestment of existing shares of Indian companies in the overseas
markets for issue of ADRs/GDRs would be reckoned as FDI. Such
proposals would require FIPB approval as also other approvals, if
any, under the FDI policy.
After completing the transactions, the companies need to furnish
full particulars including:-
Amount raised through ADRs/GDRs
Number of ADRs/GDRs issued
Underlying shares offered
Percentage of foreign equity level in the Indian company on account
of issue of ADRs/GDRs
Details of issue parameters
Details of repatriation, and other details to the Exchange Control
Department of the Reserve Bank of India, Central Office, Mumbai
within 30 days of completion of such transactions.
The proposal for divestment of the existing shares in the ADR/GDR
market would have to be approved by a special resolution of the
company whose shares are being divested.
Issue related expenses (covering both fixed expenses like
underwriting commissions, lead managers charges, legal expenses
and reimbursable expenses) for public issue shall be subject to a
ceiling of 4% in the case of GDRs and 7% in the case of ADRs and 2%
in case of private placements of ADRs/GDRs. Issue expenses beyond
the ceiling would need the approval of RBI.
ADR TERMINATION
Termination of the ADR agreement will result in cancellation of all the depositary
receipts, and a subsequent delisting from all exchanges where they trade.
The termination can be at the discretion of the foreign issuer or the depositary bank, but
is typically at the request of the issuer.
There may be a number of reasons ADRs terminate, but in most cases the foreign issuer
is undergoing some type of reorganization or merger.
Owners of ADRs are typically notified in writing at least thirty days prior to a
termination. Once notified, an owner can surrender their ADRs and take delivery of the
foreign securities represented by the Receipt, or do nothing. If an ADR holder elects to
take possession of the underlying foreign shares, there is no guarantee the shares will
trade on any US exchange.
The holder of the foreign shares would have to find a broker who has trading authority
in the foreign market where those shares trade. If the owner continues to hold the ADR
past the effective date of termination, the depositary bank will continue to hold the
foreign deposited securities and collect dividends, but will cease distributions to ADR
owners.
Usually up to one year after the effective date of the termination, the depositary bank
will liquidate and allocate the proceeds to those respective clients. Many US brokerages
can continue to hold foreign stock, but may lack the ability to trade it overseas.
LATEST ADR BONUS ISSUE BY WIPRO