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Depository Receipts

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<p align="center"> <strong>Sovereign Guarantee</strong></p>
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<p>A Depository Receipt (DR) is a financial instrument representing certain [http://arthapedia.in/index.php?title=Securities securities] (eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction. Securities of a firm are  deposited with a domestic custodian in the firm&rsquo;s domestic jurisdiction, and a corresponding &ldquo;depository receipt&rdquo; is issued abroad, which can be purchased by  foreign investors. DR is a negotiable [http://arthapedia.in/index.php?title=Securities security] (which means an instrument transferrable by mere delivery or by  endorsement and delivery) that can be traded on the stock exchange, if so  desired.</p>
<p> Sovereign Guarantee is a  promise by the Government to discharge the liability of a third person in case of his default. </p>
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<p>
<p>Sovereign Guarantees are [http://www.arthapedia.in/index.php?title=Contingent_Liabilities contingent liabilities] of the Central and State Governments that come into  play on the occurrence of an event covered by the guarantee. </p>
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  DRs constitute an important mechanism through which issuers can raise funds outside their home jurisdiction. DRs are issued for tapping foreign investors who otherwise may  not be able to participate directly in the domestic market. It is perceived as the beginning point of connecting with the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock exchange) or a way of introducing the company to a foreign investor. For investors, depository receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the exchange rate risk as they are foreign currency denominated. Further, they feel more safe to invest from their home location.  </p>
<p>The guarantee cover of the Government of India (GoI) is limited only to the payment of principal and normal interest in case of default. GoI is not be liable to pay any penal interest/any other chargesFurther, in view of the quasi-sovereign nature of the borrowings, it is stipulated that the interest payable should compare with yield on G-securities of comparable maturity with a small spread. The guarantee once given would not be transferable to any other agency. In case of default, the lending agency has to invoke the Guarantee within a time limit of 45 to 90 days of the default. In case the guarantee is not invoked within that stipulated period, the guarantee would cease to exist for that portion of the tranche/loan/liability for which  guarantee has not been invoked. </p>
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<p>
<p><strong>Legal Provisions</strong></p>
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  Depending on the location  in which these receipts are issued they are called as <strong>ADRs</strong> or American Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic (say Indian) company),  <strong>IDR</strong> or Indian Depository Receipts (if they are issued in India on the basis of the  shares/securities of the foreign company; Standard Chartered issued the first  IDR in India) or in general as <strong>GDR</strong> or Global Depository Receipt. </p>
<p>  Article 292 of the [http://indiacode.nic.in/coiweb/welcome.html Constitution of India] extends the executive power of the Union to the giving of guarantees on the  security of the Consolidated Fund of India, within such limits, if any, as may be fixed by Parliament. Similar powers are given to States under Article 293. </p>
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<p>
<p>[http://arthapedia.in/index.php?title=Fiscal_Responsibility_and_Budget_Management_(FRBM)_Act The Fiscal Responsibility and Budget Management Act, 2003] and the Rules made thereunder prescribe a limit of 0.5% of GDP for guarantees to be given in any financial year beginning with the financial year 2004-05. If this limit is exceeded owing to  unforeseen circumstances, the Finance Minister is required to make a statement in both Houses of Parliament explaining the deviation including whether the deviation is substantial and relates to the actual or the potential budgetary outcomes and the remedial measures that the Central Government proposes to take in the  matter.</p>
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  Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian security  deposited with a domestic Indian custodian in India (means a custodian or  keeper of securities- an Indian depository, a depository participant, or a bank-  and having permission from the securities market regulator, [http://www.sebi.gov.in/sebiweb/ SEBI,] to provide services as  custodian).</p>
<p><strong>Objectives </strong></p>
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<p>
<p> The sovereign guarantee is normally extended for the purpose of achieving the following objectives:-</p>
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[http://rbidocs.rbi.org.in/rdocs/notification/PDFs/FEMA330NT120115F.pdf Foreign Exchange Management (Transfer  or issue of Security by a Person Resident outside India) (Seventeenth  Amendment) Regulations, 2014] and as per the [http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/DepositoryReceiptsScheme2014.pdf Scheme] issued in this regard by the Ministry of Finance in December 2014, a depository receipt is defined as follows:</p>
 +
<p>
 +
&lsquo;<em>Depository Receipt&rsquo; means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign  depository in a permissible jurisdiction on the back of eligible securities  issued or transferred to that foreign depository and deposited with a domestic  custodian and includes &lsquo;global depository receipt&rsquo; as defined in section 2(44) of the Companies Act, 2013.&rdquo;</em></p>
 +
<p>
 +
  As per the [http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf Companies Act, 2013] &quot;Global Depository  receipt&quot; 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 while the &quot;Indian Depository Receipt&rdquo;  means any instrument in the form of a depository receipt created by a domestic  depository in India and authorised by a company incorporated outside India; </p>
 +
<p>
 +
  In India any company - whether private limited or public limited or listed or unlisted - can issue  DRs. However listed DRs enjoy some tax benefits. </p>
 +
<p>
 +
  ADR /GDR issues based on  shares of a company are considered as part of Foreign Direct Investment (FDI)  in India, though it is an indirect way of holding shares.</p>
 +
<p>
 +
<strong>Types  of DRs</strong></p>
 +
<p>
 +
  DRs are generally  classified as under: </p>
 +
 
 +
  <ul>
 +
  <li><strong>Sponsored:</strong>  Where the Indian issuer enters into a formal agreement with the foreign depository for creation or  issue  of DRs. A sponsored DR issue can be  further classified as: </li>
 +
  <li style="margin-left:20px;"><strong>Capital Raising:</strong> The issuer issues new securities which  are deposited with a domestic custodian. The foreign depository then creates DRs abroad for  sale  to foreign investors. This constitutes a capital raising exercise, as the  proceeds of the sale of DRs go to the Indian issuer. </li>
 +
  <li style="margin-left:20px;"><strong>Non-Capital Raising:</strong> In a non-capital raising issue, no fresh underlying  securities  are issued. Rather, the issuer gets holders of  its existing securities to deposit these securities with a domestic custodian, so that DRs can be  issued abroad by  the foreign depository. This is not a capital  raising exercise for the Indian issuer,  as the proceeds from the sale of the DRs go to the holders of the underlying securities. </li>
 +
  <li><strong>Unsponsored:</strong> Unsponsored DRs are where  there is no formal agreement between the foreign depository and the Indian  issuer. Any person other than the Indian issuer may, without any involvement of  the issuer, deposit the securities with a domestic  custodian in India. A foreign depository then  issues DRs abroad on the back of such deposited securities. This is not a  capital raising exercise for the Indian issuer,   as the proceeds from the sale of the DRs go to the holders of the  underlying securities.</li>
 +
</ul>
 +
 
 +
<p>Based on whether a DR is  traded in an organised market or in the over the counter (OTC) market, the DRs  can be classified as listed or unlisted.</p>
 
<ul>
 
<ul>
   <li>To improve viability of projects or  activities with significant social and economic benefits, undertaken by  government or non-government entities under [http://arthapedia.in/index.php?title=Public_Private_Partnership_(PPP) Public Private Partnerships];</li>
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   <li><strong>Listed:</strong>  Listed  DRs are traded on organised exchanges.  The most common  example of  this are American Depository Receipts (ADRs) which  are  traded on the New York Stock Exchange (NYSE). </li>
   <li>To enable [http://arthapedia.in/index.php?title=Public_Sector_Undertakings/Enterprises public sector companies] to raise resources at lower interest charges or on  more favourable terms;</li>
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   <li><strong>Unlisted:</strong> Unlisted DRs are traded over the counter (OTC) between parties. Such DRs are not listed on any formal exchange. </li>
  <li>To fulfill the requirement in cases where sovereign guarantee is a precondition for concessional loans from  bilateral/multilateral agencies to sub-sovereign borrowers.</li>
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</ul>
 
</ul>
<p>&nbsp;</p>
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<p><strong>International experience </strong></p>
<p><strong>Class of  guarantees given by the Union Government </strong></p>
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<p> The most common DR programs internationally are:
<p>The different guarantees given by the Union Government are as follows:</p>
+
</p>
 
<ul>
 
<ul>
   <li>Guarantees given to RBIs, other banks and Financial Institutions (like IFCI, LIC, UTI etc) for repayment of principal and payment of interest, cash credit facility, financing seasonal agricultural  operations, and for providing working capital in respect of companies,  corporations, cooperative societies and cooperative banks </li>
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   <li><strong>ADRs:</strong> DRs issued in United States of America (US) by foreign firms are usually referred to as ADRs. These are further  classified based on the detailed rules under the US securities laws. The classification is based on applicable disclosure norms and consists of: </li>
   <li>Guarantees given for repayment of share capital, payment of minimum annual dividend and repayment of bonds / loans, debentures issued / raised by statutory corporations and financial institutions </li>
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   <li style="margin-left:20px;">Level 1: These programs establish  a trading presence  in the US but cannot be used for capital raising. They may only be traded on OTC markets, and  can be  unsponsored. </li>
   <li>Guarantees given in pursuance of agreements entered into by the Government of India with International Financial  Institutions, Foreign lending agencies, Foreign Governments, Contractors,  Consultants, etc., towards repayment of principal, payment of interest /  commitment charges on loans, etc., by them and payment against agreement for  supplies of material and equipment on credit basis to companies, Corporations/  Port Trusts, etc. </li>
+
   <li style="margin-left:20px;">Level 2: These programs establish  a trading presence  on a national securities exchange in  the US but cannot be used for  capital raising. </li>
   <li>Counter-Guarantees to Banks in consideration of the Banks having issued Letters of Authority to Foreign Suppliers for Supplies / Services made / rendered by them on credit basis, in favour of the Companies / Corporations. </li>
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   <li style="margin-left:20px;">Level 3: These programs can not only establish   a trading presence on a national securities exchange in the US but also help raise capital for the foreign issuer. </li>
   <li>Guarantees given to Railways / State  Electricity Boards for due and punctual payment of dues / freight charges by Companies / Corporations. (Nil for  past  few years) </li>
+
   <li style="margin-left:20px;">Rule 144A: This involves sale of securities by a non-US issuer only to  Qualified Institutional Buyers (QIBs) in the US. </li>
   <li>Performance guarantees given for  fulfilment of contracts / projects awarded to Indian companies in foreign  countries. (Nil for  past few years) </li>
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   <li><strong>Global Depository Receipts (GDRs):</strong> GDR is a collective  term for DRs issued in non-US jurisdictions  and includes the DRs traded in London, Luxembourg, Hong Kong, Singapore.</li>
  <li>Performance guarantees given for fulfilment of contracts / projects awarded to Foreign companies in foreign countries(Nil for past few years) </li>
+
 
</ul>
 
</ul>
<p><strong>Operational  aspects </strong></p>
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<p><strong>Regulatory Regime for Depository Receipts in India</strong></p>
<p>  Chapter 11 of the [http://www.finmin.nic.in/the_ministry/dept_expenditure/GFRS/index.asp General Financial Rules, 2005] details the current administrative guidelines for  grant, review, accounting and monitoring of sovereign guarantees. </p>
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<p>
<p>Indian Government Accounting Standards (IGAS) which became effective on 1 April 2010 has notified on 20th December the [http://www.gasab.gov.in/pdf/IGAS-1-NOTIFICATION.pdf IGAS 1 &ldquo;Guarantees given by the Governments: Disclosure Requirements]&rdquo; to  ensure uniform and complete disclosure of government guarantees across the  Union and State Governments. IGASs are issued by Government Accounting  Standards Advisory Board ([http://www.gasab.gov.in/ GASAB])  constituted by Comptroller and Auditor General of India ([http://cag.gov.in/ CAG])</p>
+
  In India, the issue of Depository receipts were regulated by the &ldquo;The Issue of Foreign Currency  Convertible Bonds and Ordinary Share (through Depository Receipt Mechanism)  Scheme 1993 issued by the Ministry of Finance.   The 1993 Scheme was formulated at a time when India&rsquo;s capital markets  were substantially closed to foreign capital and the domestic financial system was  not well developed. In the last two decades, the equity market has developed  sophisticated market infrastructure with active participation by both domestic  and foreign investors and capital controls have been eased substantially. In  this period many aspects of the Indian legal and regulatory system have evolved  with substantial changes. These developments warranted a fresh look at the  Scheme governing the issue of Depository Receipts (DRs). Accordingly, based on  the recommendations of the [http://finmin.nic.in/reports/Sahoo_Committee_Report.pdf MS Sahoo committee], Hon&rsquo;ble Finance Minister had announced in the [http://indiabudget.nic.in/ 2014-15 Budget Speech] that he propose to &ldquo;Liberalize the ADR/GDR regime to allow issuance of depository receipts on all  permissible securities&rdquo;. Accordingly &ldquo;[http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/DepositoryReceiptsScheme2014.pdf The Depository Receipts Scheme, 2014]&quot; was formulated and implemented from December 15, 2014. </p>
<p>A [http://finmin.nic.in/the_ministry/dept_eco_affairs/budget/govern_guarantee_policy.pdf Government  Guarantee Policy] was notified in September 2010. </p>
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<p>
<p>Guarantees are paid out of the [http://arthapedia.in/index.php?title=Guarantee_Redemption_Fund Guarantee Redemption Fund] of the Government which is positioned in [http://arthapedia.in/index.php?title=Public_Accounts public accounts]. </p>
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<strong>Detailed comparison of the 1993 Scheme and the 2014 scheme</strong></p>
 +
<table border="0" cellspacing="0" cellpadding="0" width="100%">
 +
  <tr>
 +
    <td valign="top" width="10%">
 +
      <strong>Sl. No.</strong></td>
 +
    <td valign="top" width="30%"><strong>Parameter</strong></td>
 +
    <td valign="top" width="30%"><strong>1993 Scheme</strong></td>
 +
    <td valign="top" width="30%"><strong>2014 Scheme</strong></td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">1 </td>
 +
    <td valign="top"><strong>Approval  for  issue of DRs from authorities</strong></td>
 +
    <td valign="top">Required      from MoF </td>
 +
    <td valign="top">Not required </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">2 </td>
 +
    <td valign="top"><strong>Issuer of DRs (foreign depository)</strong></td>
 +
    <td valign="top">A   bank      authorized  by   issuer    of underlying securities </td>
 +
    <td valign="top">A  regulated     person having legal    capacity to issue DRs </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">3 </td>
 +
    <td valign="top"><strong>Custodian of DRs (domestic custodian)</strong></td>
 +
    <td valign="top">A bank which    acts as a custodian </td>
 +
    <td valign="top">A  regulated   entity  having legal    capacity  to      act as  custodian for underlying securities </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">4 </td>
 +
    <td valign="top"><strong>Jurisdictions for issue of DRs</strong></td>
 +
    <td valign="top">Anywhere        for listed companies; [http://www.fatf-gafi.org/ FATF]/ [http://www.iosco.org/ IOSCO] jurisdiction for  unlisted    companies </td>
 +
    <td valign="top">FATF and IOSCO compliant jurisdictions </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">5 </td>
 +
    <td valign="top"><strong>Purpose of issue of DRs </strong></td>
 +
    <td valign="top">Capital       raising and non-capital raising </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">6 </td>
 +
    <td valign="top"><strong>Quantity / Limit  on issue of DRs</strong></td>
 +
    <td valign="top">No limit </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">7 </td>
 +
    <td valign="top"><strong>Kind of issue of DRs</strong></td>
 +
    <td valign="top">Sponsored </td>
 +
    <td valign="top">Both    sponsored and unsponsored </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">8 </td>
 +
    <td valign="top"><strong>Mode of issue of DRs</strong></td>
 +
    <td valign="top">Public offer,     private placement or any other manner prevalent </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">9 </td>
 +
    <td valign="top"><strong>Listing of DRs</strong></td>
 +
    <td valign="top">Not required </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">10 </td>
 +
    <td valign="top"><strong>End Use</strong></td>
 +
    <td valign="top">Restricted </td>
 +
    <td valign="top">No restriction </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">11 </td>
 +
    <td valign="top"><strong>Securities  underlying DRs</strong></td>
 +
    <td valign="top">Equity shares and  FCCB </td>
 +
    <td valign="top">Any securities    which are available to persons resident outside India   and in demat form </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">12 </td>
 +
    <td valign="top"><strong>Subscribers of DRs</strong></td>
 +
    <td valign="top">Any person </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">13 </td>
 +
    <td valign="top"><strong>Mode of issue of underlying shares</strong></td>
 +
    <td valign="top">Any mode permissible under law </td>
 +
    <td valign="top">No change </td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">14</td>
 +
    <td valign="top"><strong>Mode of transfer of underlying  securities to foreign depository</strong></td>
 +
    <td valign="top">Not applicable</td>
 +
    <td valign="top">On Exchange, Off Exchange    and tender process</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">15</td>
 +
    <td valign="top"><strong>Pricing           of    underlying securities at issue</strong></td>
 +
    <td valign="top">Listed shares as per    SEBI rules; Unlisted shares as per    discounted cash flow method</td>
 +
    <td valign="top">Listed shares as per    SEBI rules; No restriction on other securities</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">16</td>
 +
    <td valign="top"><strong>Issuer of underlying securities</strong></td>
 +
    <td valign="top">Any company- listed or    unlisted</td>
 +
    <td valign="top">Any issuer - listed or    unlisted</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">17</td>
 +
    <td valign="top"><strong>Whether         underlying    shares form part public holding</strong></td>
 +
    <td valign="top">No</td>
 +
    <td valign="top">Yes subject to certain    conditions</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">18</td>
 +
    <td valign="top"><strong>Conversion from underlying securities to    DRs and vice versa</strong></td>
 +
    <td valign="top">Permissible</td>
 +
    <td valign="top">No change</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">19</td>
 +
    <td valign="top"><strong>Voting rights associated with underlying    securities</strong></td>
 +
    <td valign="top">Foreign depository</td>
 +
    <td valign="top">No change</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">20</td>
 +
    <td valign="top"><strong>Obligations</strong></td>
 +
    <td valign="top">No explicit provision</td>
 +
    <td valign="top">Custodian, depository,    issuer and transferor of underlying securities, holders of DRs</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">21</td>
 +
    <td valign="top"><strong>Market Abuse</strong></td>
 +
    <td valign="top">No explicit provision</td>
 +
    <td valign="top">To  be     dealt  by SEBI</td>
 +
  </tr>
 +
  <tr>
 +
    <td valign="top">22</td>
 +
    <td valign="top"><strong>Oversight on Prevention on money laundering </strong></td>
 +
    <td valign="top">FIU, Enforcement    Directorate and SEBI</td>
 +
    <td valign="top">No change</td>
 +
  </tr>
 +
</table>
  
 
==References==
 
==References==

Revision as of 09:32, 11 March 2015

A Depository Receipt (DR) is a financial instrument representing certain securities (eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction. Securities of a firm are deposited with a domestic custodian in the firm’s domestic jurisdiction, and a corresponding “depository receipt” is issued abroad, which can be purchased by foreign investors. DR is a negotiable security (which means an instrument transferrable by mere delivery or by endorsement and delivery) that can be traded on the stock exchange, if so desired.

DRs constitute an important mechanism through which issuers can raise funds outside their home jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be able to participate directly in the domestic market. It is perceived as the beginning point of connecting with the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock exchange) or a way of introducing the company to a foreign investor. For investors, depository receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the exchange rate risk as they are foreign currency denominated. Further, they feel more safe to invest from their home location.  

Depending on the location in which these receipts are issued they are called as ADRs or American Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic (say Indian) company),  IDR or Indian Depository Receipts (if they are issued in India on the basis of the shares/securities of the foreign company; Standard Chartered issued the first IDR in India) or in general as GDR or Global Depository Receipt.

Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian security deposited with a domestic Indian custodian in India (means a custodian or keeper of securities- an Indian depository, a depository participant, or a bank- and having permission from the securities market regulator, SEBI, to provide services as custodian).

Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014 and as per the Scheme issued in this regard by the Ministry of Finance in December 2014, a depository receipt is defined as follows:

Depository Receipt’ means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of eligible securities issued or transferred to that foreign depository and deposited with a domestic custodian and includes ‘global depository receipt’ as defined in section 2(44) of the Companies Act, 2013.”

As per the Companies Act, 2013 "Global Depository receipt" 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 while the "Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India;

In India any company - whether private limited or public limited or listed or unlisted - can issue DRs. However listed DRs enjoy some tax benefits.

ADR /GDR issues based on shares of a company are considered as part of Foreign Direct Investment (FDI) in India, though it is an indirect way of holding shares.

Types of DRs

DRs are generally classified as under:

Based on whether a DR is traded in an organised market or in the over the counter (OTC) market, the DRs can be classified as listed or unlisted.

International experience

The most common DR programs internationally are:

Regulatory Regime for Depository Receipts in India

In India, the issue of Depository receipts were regulated by the “The Issue of Foreign Currency Convertible Bonds and Ordinary Share (through Depository Receipt Mechanism) Scheme 1993 issued by the Ministry of Finance.  The 1993 Scheme was formulated at a time when India’s capital markets were substantially closed to foreign capital and the domestic financial system was not well developed. In the last two decades, the equity market has developed sophisticated market infrastructure with active participation by both domestic and foreign investors and capital controls have been eased substantially. In this period many aspects of the Indian legal and regulatory system have evolved with substantial changes. These developments warranted a fresh look at the Scheme governing the issue of Depository Receipts (DRs). Accordingly, based on the recommendations of the MS Sahoo committee, Hon’ble Finance Minister had announced in the 2014-15 Budget Speech that he propose to “Liberalize the ADR/GDR regime to allow issuance of depository receipts on all permissible securities”. Accordingly “The Depository Receipts Scheme, 2014" was formulated and implemented from December 15, 2014.

Detailed comparison of the 1993 Scheme and the 2014 scheme

Sl. No. Parameter 1993 Scheme 2014 Scheme
1 Approval  for  issue of DRs from authorities Required      from MoF Not required
2 Issuer of DRs (foreign depository) A   bank   authorized  by   issuer of underlying securities A  regulated  person having legal capacity to issue DRs
3 Custodian of DRs (domestic custodian) A bank which acts as a custodian A  regulated   entity  having legal capacity  to   act as  custodian for underlying securities
4 Jurisdictions for issue of DRs Anywhere        for listed companies; FATF/ IOSCO jurisdiction for unlisted companies FATF and IOSCO compliant jurisdictions
5 Purpose of issue of DRs Capital       raising and non-capital raising No change
6 Quantity / Limit  on issue of DRs No limit No change
7 Kind of issue of DRs Sponsored Both    sponsored and unsponsored
8 Mode of issue of DRs Public offer,  private placement or any other manner prevalent No change
9 Listing of DRs Not required No change
10 End Use Restricted No restriction
11 Securities  underlying DRs Equity shares and  FCCB Any securities which are available to persons resident outside India   and in demat form
12 Subscribers of DRs Any person No change
13 Mode of issue of underlying shares Any mode permissible under law No change
14 Mode of transfer of underlying  securities to foreign depository Not applicable On Exchange, Off Exchange and tender process
15 Pricing           of underlying securities at issue Listed shares as per SEBI rules; Unlisted shares as per discounted cash flow method Listed shares as per SEBI rules; No restriction on other securities
16 Issuer of underlying securities Any company- listed or unlisted Any issuer - listed or unlisted
17 Whether         underlying shares form part public holding No Yes subject to certain conditions
18 Conversion from underlying securities to DRs and vice versa Permissible No change
19 Voting rights associated with underlying securities Foreign depository No change
20 Obligations No explicit provision Custodian, depository, issuer and transferor of underlying securities, holders of DRs
21 Market Abuse No explicit provision To  be  dealt  by SEBI
22 Oversight on Prevention on money laundering FIU, Enforcement Directorate and SEBI No change

References

M.S. Sahoo. (November 2013). Report of the Committee to Review the FCCBs and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993. New Delhi: Ministry of Finance, Government of India.

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