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Monday, Feb 18, 2002

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Sponsored ADR/GDR programme to be liberalised -- Cos may get nod to divest in unlisted arms abroad

Shaji Vikraman
Hema Ramakrishnan

NEW DELHI, Feb. 17

THE Government is set to announce its decision to liberalise the sponsored ADR/GDR programme by allowing Indian corporates to divest their equity holdings abroad in their unlisted subsidiaries in the forthcoming Budget for 2002-03.

According to senior officials, the Ministry has also taken a decision to rework the income-tax laws to ensure that there is no discrimination between classes of shareholders in participating in the sponsored ADR/GDR programme.

In the sponsored ADR/GDR programme announced in the 2001-02 Budget, a group company can divest equity holdings of its subsidiary that is also a listed company. Retail shareholders can also participate in this programme by divesting shares held by them. The divested shares are deposited with the custodian who then consolidates these local shares and issues ADRs or GDRs against these underlying shares.

The only company that has so far sought its shareholders' permission for a sponsored ADR/GDR programme is Reliance Industries Ltd (RIL) for divesting its equity in Reliance Petroleum Ltd (RPL).

However, the programme did not take off because the Revenue Department raised objections saying that the tax break was restricted under the income-tax laws only to overseas investors subscribing to ADRs or GDRs issued against shares divested by a group company in its listed subsidiary.

In other words, the 10 per cent tax rate was not granted on ADRs or GDRs issued against shares divested by a retail shareholder.

Officials pointed out that there was a discrepancy between the announcement made in the Budget to permit Indian corporates to list in foreign stock exchanges by sponsoring ADR/GDR issues against block shareholding and the changes made in the Income-Tax Act 1961.

Amendments will be made in the 2002-03 Budget to extend the tax break to all classes of shareholders. The changes are being brought about after the Department of Economic Affairs (DEA) made the point that there cannot be discrimination between shareholders. The objective was to help Indian companies to realise a better value for their investments in the overseas markets by selling their holdings to institutional investors.

An in-principle decision was also taken, after the 2001-02 Budget, to liberalise the guidelines for the sponsored ADR/GDR programme to include unlisted companies as well.

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Sponsored ADR/GDR programme to be liberalised -- Cos may get nod to divest in unlisted arms abroad

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