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Euro Issues by Indian Companies

Indian companies are permitted to raise foreign currency resources through issue of Foreign Currency Convertible Bonds (FCCBs) and/or issue of ordinary equity shares through Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) to foreign investors i.e. institutional investors or individuals (including NRIs) residing abroad. Applications for necessary permission should be made to the Government of India, Ministry of Finance, Department of Economic Affairs, New Delhi.

After obtaining the necessary approval from the Government, the Indian company should submit an application to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai - 400 001 enclosing a copy of the application made to the Government and the in-principle/final approval granted by the Government, for necessary permission for issue/acquisition of shares to/by non-residents, remittance of issue expenses, opening of foreign currency accounts, etc.

The FCCBs/GDRs/ADRs issued by Indian companies to non-residents have free convertibility outside India. As regards transfer of shares (on conversion of GDRs/ADRs into shares) in favour of residents, the non-resident holder of GDRs/ADRs should approach the Overseas Depository bank with a request to the Domestic Custodian bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold by the non-resident or for being transferred in the books of the issuing company in the name of the non-resident. Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.185/98-RB dated 19th August 1998, permitting transfer of shares from non-residents to residents, provided

such shares were released by the Indian custodian of a GDR/ADR issue against surrender of GDRs/ADRs by the non-resident concerned and

the sale is made on a stock exchange or the shares are offered for sale in terms of an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

Authorized dealers may allow remittance of sale proceeds of such underlying shares on verification of the following documents:-

Release Order in original from the Domestic Custodian bank of the GDR/ADR issue.

Sale note from a SEBI registered broker/merchant banker showing the number of shares transferred and the amount of sale proceeds.

An undertaking/Accountant's certificate regarding payment of Income-tax

Authorized dealers may also allow the non-resident transferor to keep the above mentioned shares in their safe custody till the sale of the shares is effected and to open a non-resident non-interest bearing account to collect the sale proceeds of the shares. A statement giving details, such as the name of the company whose shares have been sold, number of shares sold and the amount remitted should be submitted to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai 400 001 within a period of 7 days from the date of effecting the remittance.

The above general permission will be applicable for transfer of shares underlying GDRs/ADRs through stock exchange or under an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997. All other cases including transfer of shares, on conversion of FCCBs into shares in favour of residents, will require approval of Reserve Bank.

The Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.193/99-RB dated 16th March 1999 permitting

the non-resident holders of ADRs/GDRs issued by a company registered in India to acquire the underlying shares against surrender of ADRs/GDRs held by them when such shares are released by the Indian Custodian of the ADR/GDR issue

the company/depository concerned to enter in its register or books an address outside India of the non-resident holder in respect of the underlying shares issued against surrender of ADRs/GDRs.

In terms of Government guidelines, issue proceeds are required to be kept in foreign currency and can be utilized only for certain purposes such as for meeting the cost of expansion/diversification /acquisition/import of new plants and machinery, repayment of foreign currency loans, etc. as approved by the Government. Pending deployment of funds for approved purposes, the Indian company is allowed to keep the foreign currency funds abroad with foreign banks ( which are rated for short-term obligations as A1 + by Standard & Poor or P1 by Moody's ) or with branches of Indian banks abroad as deposits, or to invest them abroad in treasury bills and other monetary instruments with maturity not exceeding one year. Funds raised through GDRs/ADRs, FCCBs and ECBs will also be allowed to be invested in rated certificates of deposit abroad. The issue proceeds can also be kept in foreign currency accounts with authorized dealers/public financial institutions in India authorized to deal in foreign exchange. It will accordingly be in order for authorized dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro Issue proceeds subject to the following conditions :-

The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted.

Authorized dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for on-lending in foreign currency to eligible clients.

Authorized dealers may also invest surplus foreign currency out of such Euro Issue proceeds as per the aforesaid norms.

Authorized dealers/public financial institutions accepting the foreign currency deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds.

Authorized dealers will have to comply with the requirements of CRR/SLR as laid down by Reserve Bank from time to time.

The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including upto a maximum of 15% of the proceeds earmarked for general corporate restructuring) are incurred by the Indian company.

Authorized dealers/public financial institutions accepting such deposits as also the Indian company, as the case may be, should comply with the conditions stipulated by Government of India in their approval letters for such issues.

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