Securities And Exchange Board Of India Bars Citizens, NRIs From Buying Depository Receipts Of India Listed Companies

The Securities & Exchange Board of India (SEBI) has barred Indian citizens, including Non-Resident Indians (NRIs) from buying depository receipts issued by locally listed companies, according to a recent SEBI circular.

The latest move appears to be aimed at tighter ownership rules on Indian companies raising funds through foreign equity sales thorough issue of depository receipts.

Depository receipts, such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), are instruments denominated in foreign currencies. These are issued by a foreign depository against the shares respective companies have deposited with a custodian in India.

The SEBI has stated that depository receipts would be required to be listed on an international stock exchange of a permissible jurisdiction.

Such international stock exchanges would be notified by SEBI from time to time and currently appear to include only Level 3 public offerings on the Nasdaq and the NYSE, the main board of the Hong Kong Stock Exchange and Global Despository Receipts (GDRs) admitted on the London Stock Exchange.

The SEBI has stated that custodians should take voting instructions from depository receipt holders before voting for company resolutions.

Presently, certain depository receipt schemes have a formulation where either the holder instructs the depository to vote or if the depository does not receive instructions from the holder, the depository receipt holder is deemed to have authorized a discretionary proxy to a person designated by the issuer to vote.

The latest SEBI circular appears to restrict such discretionary proxy in favor of issuers or their management.

The capital market regulator also mentioned that depository receipt holders would not be included in the list of minimum public shareholders.