The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts by companies listed or to be listed in India, via its circular dated October 10, 2019.A Depository Receipt (DR) is a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository to a domestic custodian and includes global...
The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts by companies listed or to be listed in India, via its circular dated October 10, 2019.
A Depository Receipt (DR) is a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository to a domestic custodian and includes global depository receipts (GDRs).
Only a company incorporated in India and listed on a Recognized Stock Exchange in India’ (Listed Company) may issue Permissible Securities or their holders may transfer Permissible Securities, for the purpose of issue of Depository Receipts (DRs).
As per the circular, SEBI has issued detailed procedure that needs to be followed for issuance of DRs, besides eligibility criteria for listed companies and obligations of Indian as well as foreign depositories and domestic custodians.
According to SEBI, only a listed company is allowed to issue permissible securities or their holders may transfer such securities for the issuance of DRs subject to certain requirements. Listing out eligibility for issuance of DRs, SEBI said that listed firms are allowed to issue such securities provided their Promoters, Directors and selling shareholders are not barred from the capital markets. Besides, they should not be wilful defaulters or economic offenders. In addition, existing holders will be eligible to transfer permissible securities for the purpose of issuance of DRs.
For the purpose of an initial issue and listing of DRs, SEBI said that pursuant to ‘transfer by existing holders’, the firm would provide an opportunity to its equity shareholders to tender their shares for participation in such listing of DRs.
A company proposing to make a public offer and list on a stock exchange, and also simultaneously plans to issue permissible securities or transfer such securities of existing holders, for the purpose of issue of DRs and listing such DRs on an international stock market, would seek in-principle as well as final approval from the Indian exchange as well as overseas bourse (stock market).
Listed firms will be allowed to issue permissible securities for the purpose of issue of DRs only in permissible jurisdictions and such DRs will be listed on specified international bourses, including Nasdaq, NYSE, Hong Kong Stock Exchange and London Stock Exchange.
According to SEBI, permissible jurisdiction includes a jurisdiction which has treaty obligations to share information and co-operate with Indian authorities in the event of any investigation.