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Seeking to widely throw open the depository receipts’ window, a Finance Ministry appointed panel has recommended that Indian companies be allowed to issue such an instrument in overseas markets against any underlying security.
Currently, depository receipts are allowed to be issued by Indian companies only against the underlying of their ordinary equity shares.
If this panel’s recommendation finds acceptance with policymakers, Indian issuers can raise money abroad by issuing depository receipts (DRs) against the underlying of say a debenture, bond, mutual fund unit, collective investment scheme, G-secs, exchange traded fund or even shares of private companies.
This could bring back depository receipts’ issuances, which have been muted in recent years, into fashion, say capital market observers
The basic philosophy of this recommendation (by the M.S.Sahoo panel) is to allow foreign investment in DRs in each of the underlying security where foreign investments are already directly allowed, sources privy to the panel’s recommendations said.
“When foreign investment is directly allowed in instruments such as bonds, debentures, G-secs, mutual fund units etc, then foreign investment should also be allowed in DRs with these securities as underlying,” the sources added.
Depository receipts
Depository receipts are receipts denominated in foreign currency created by a depository in the country of listing. There are two popular types of DRs — global depository receipts and American depository receipts.
DRs are created against the underlying equity shares of the Indian company in a predetermined ratio.
Sahoo panel
The Centre had appointed the M.S.Sahoo Committee to undertake a comprehensive review of the depository receipt mechanism scheme put in place in 1993.
Depository receipts were the first option for Indian policymakers when they decided to throw open the economy to foreign investors in early nineties. Beginning of life with foreign investments started with DRs, it was pointed out.
The Sahoo panel, which submitted its report to Economic Affairs Secretary Arvind Mayaram on November 26, has suggested repeal of the 1993 GDR/FCCB scheme.
This committee, which was headed by former SEBI wholetime member M.S.Sahoo, has recommended the introduction of a contemporary scheme, it is learnt.
The recommendations have also factored in legislative changes such as enactment of new company law, the sources said.
FATF/IOSCO compliant
Sahoo panel is learnt to have recommended that depository receipts’ be allowed to be issued and listed only in financial action task force (FATF)/IOSCO compliant jurisdictions.
This will ensure that funds come into India only from the best markets and not through non-compliant jurisdictions.
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