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26 September 2012 What is GLOBAL DEPOSITARY RECEIPTS?

Ajay Mishra

Ajay Mishra (Expert)
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26 September 2012 Hi

"Global Depository Receipt"(GDR) means a security issued by a bank or a depository outside India against underlying rupee shares of a company incorporated in India.

"American Depository Receipt" (ADR) means a securityissued by a bank or a depository in United States of America (USA) against underlying rupee shares of a company incorporated in India.

American / Global Depository Receipts are in form of Depositary Receipts (DRs) as negotiable securities issued outside India by a Depository Bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian Bank in India. DRs are traded in Stock Exchanges in the US, Singapore, Luxembourg etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs).
In the Indian context, DRs are treated as FDI. [Master Circular No. 2/ 2007-2008 dated July 02, 2007.]

Ajay Mishra

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26 September 2012 The issue of ADR/GDR by India Inc. is governed by following legal provisions:

1. Section 6 (3) (b) of Foreign Exchange Management Act, 1999 reads as follows:

6. Capital account transactions. –
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify-
(a) any class or classes of capital account transactions which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions: Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary courts of business.
(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following-
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
2. Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.
3. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000. [FEMA 19/2000 RB dated May 03, 2000]
􀂾 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2000. [FEMA 94/2003 RB dated June 18, 2003]
􀂾 Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004. [FEMA 120/RB- 2004 dated July 07, 2004]
􀂾 Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2005.
[FEMA 132/2005 RB dated March 31, 2005]
􀂾 Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2007. [FEMA 164/2007 RB dated October 9, 2007]
4. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. [ FEMA 20/2000 RB dated May 03, 2000]

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