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Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993

Published on Tue, Nov 27, 2007   |  Source : Legal Pundits.com

GSR No. 700(E) - Central Government hereby notifies the following scheme, for facilitating issue of Foreign Currency Convertible Bonds and Ordinary Shares through Global Depository Mechanism by Indian Companies, namely:-

1. Short title and Commencement.

(1) This scheme may be called the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

(2) It shall be deemed to have come into force with effect from the first day of April, 1992.

2. Definitions.

In this scheme, unless the context otherwise requires,-

(a) "Domestic Custodian Bank" means a banking company which acts as a custodian for the ordinary shares or foreign currency convertible bonds of an Indian company which are issued by it against Global Depository Receipts or Certificates;

(b) "Foreign Currency Convertible Bonds" means bonds issued in accordance with this scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of 'the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments;

(c) "Global Depository Receipts" means any instrument in the form of a depository receipt or certificate (by whatever name it is called) created by the Overseas Depository Bank outside India and issued to non-resident investor against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company;

(d) "Issuing Company" means an Indian company permitted to issue Foreign Currency Convertible Bonds or ordinary share of that company against Global Depository Receipt;

(e) "Overseas Depository Bank" means a bank authorised by the issuing company to issue global depository receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company;

(f) the words and expressions not defined in the Scheme, but defined in the Income-tax Act, 1961 (43 of 1961), or the Companies Act, 1956 (1 of 1956), or the Securities and Exchange Board of India Act, 1992 (15 of 1992), or the Rules and Regulations framed under these acts, shall have the meaning respectively assigned to them, as the case may be, in the Income-tax Act or the Companies Act, or the Securities and Exchange Board of India Act.

1 [ (g) "a software company" means a company engaged in manufacture or production of software where not less than 80% of the company's turnover is from software activities;

(h) "information technology software and information technology services" means the companies which deal with such activities as defined in recommendation No. 19(a) and (b) of the notification dated 25th July, 1998, issued by the Planning Commission. ]

3. Eligibility for issue of convertible bonds or ordinary shares of issuing company.

(1) An issuing company desirous of raising foreign funds by issuing Foreign. Currency Convertible Bonds or ordinary shares for equity issues through global Depository Receipt is required to obtain prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India.

5[3(1)(A). An Indian company, which is not eligible to raise funds from the Indian capital market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue (i) Foreign Currency Convertible Bonds and (ii) Ordinary Shares through Global Depositary Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.

3(1)(B). Unlisted Indian Companies issuing Global Depositary Receipts/Foreign Currency Convertible Bonds shall be required to simultaneously list in the Indian Stock Exchange(s).

3(1)(C) Erstwhile Overseas Corporate Bodies (OCBs) who are not eligible to invest in India through the portfolio route and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to subscribe to (i) Foreign Currency Convertible Bonds and (ii) Ordinary Shares through Global Depositary Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares(Through Depositary Receipt Mechanism) Scheme, 1993.]

(2) An issuing company seeking permission under sub-paragraph (1) shall have a consistent track record of good performance (financial or otherwise) for a minimum period of three years, on the basis of which an approval for finalising the issue structure would be issued to the company by the Department of Economic Affairs, Ministry of Finance.

(3) On the completion of finalisation of issue structure in consultation with the Lead Manager to the issue, the issuing company shall obtain the final approval for proceeding ahead with the issue from the Department of Economic Affairs.

Explanation.-- For the purposes of sub-paragraphs (2) and (3) "issue structure" means any of the requirements which are provided in paragraphs 5 and 6 of this Scheme.

(4) The Foreign Currency Convertible Bonds shall be denominated in any convertible foreign currency and the ordinary shares of an issuing company shall be denominated in Indian rupees.

(5} When an issuing company issues ordinary shares or bonds under this scheme, that company shall deliver the ordinary shares or bonds to a Domestic Custodian Bank who will, in terms of agreement, instruct the Overseas Depository Bank to issue Global Depository Receipt or Certificate to non-resident investor against the shares or bonds held by the Domestic Custodians Bank.

(6) A Global Depository Receipt may be issued in the negotiable form and may be listed on any international stock exchanges for trading outside India.

(7) The provisions of any law relating to issue of capital by an Indian company shall apply in relation to the issue of Foreign Currency Convertible Bonds or the ordinary shares of an issuing company and the issuing company shall obtain the necessary permission or exemption from the appropriate authority under the relevant law relating to issue of capital.

2 [ 3A. Issue of Global Depository Receipts

Indian companies engaged in Information Technology Software and Information Services, are eligible to offer to their non-resident/resident permanent employees (including Indian and Overseas working directors) global depository receipts against the issue of ordinary shares under the scheme subject to the operational guidelines/conditions issued from time to time by the Government.

3B. Indian companies engaged in Information Technology Software and Information Technology Services as defined in recommendation No. 19(a) and (b) of the Notification dated 25-7-1998 issued by the Planning Commission, are eligible to offer also to the non-resident/resident permanent employees (including Indian and overseas working directors) of their subsidiary companies, incorporated in India or abroad and engaged in Information Technology Software and Information Technology Services, Global Depositary Receipts against the issue of ordinary shares under the Scheme subject to the eligibility conditions and operational guidelines/conditionalities announced from time to time by the Government. ]

3 [ 3C. Indian companies registered in India and engaged in the following sectors/areas, where 80 -per cent of turnover is from these sectors/areas of the operation/business of the company in the three previous financial years, are eligible to offer global depository receipts against the issue of ordinary shares under the Scheme to their non-resident/resident permanent employees (including Indian and overseas working directors) and also of their subsidiary companies, incorporated in India or abroad, subject to the eligibility conditions and operation guidelines/conditionalities announced from time to time by the Government:--

(i) Information Technology (as defined in the recommendation No. 19(a) and (b) of Gazette Notification dated 25th July, 1999, issued by the Planning Commission) and Entertainment Software.

(ii) Pharmaceuticals,

(iii) Biotechnology.

(iv) Any other activities within the knowledge based sector as notified by the Government from time to time.

These norms would also be available for multi-product diversified companies which do not conform to the criteria of 80 per cent turn over as mentioned above but having an average annual export earnings of Rs. 100 crores from the sectors mentioned above in the three previous financial years. ]

4. Limits of foreign investment in the issuing company

The ordinary shares and Foreign Currency-Convertible Bonds issued against the Global Depository Receipts shall be treated as direct foreign investment in the issuing company. The aggregate of the foreign investment made either directly or indirectly (through Global Depository Receipts Mechanism) shall not exceed 51% of the issued and subscribed capital of the issuing company:

Provided that the investments made through Offshore Funds or by Foreign Institutional Investor will not form part of the limit laid down in this paragraph.

5. Issue structure of the Global Depository Receipts

(1) A Global Depository Receipt may be issued for one or more underlying shares or bonds held with the Domestic Custodian Bank.

(2) The Foreign Currency Convertible Bonds and Global Depository Receipts may be denominated in any freely convertible foreign currency.

(3) The ordinary shares underlying the Global Depository Receipts and the shares issued upon conversion of the Foreign Currency Convertible Bonds will be denominated only in the currency.

(4) The following issues will be decided by the issuing company with the Lead Manager to the issue, namely:

(a) public or private placement;
(b) number of Global Depository Receipts to be issued;
(c) the issue price;
5[(ca) Listed Companies - The pricing should not be less than the higher of the following two averages:
(i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;
(ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.
The 'relevant date' means the date thirty days prior to the date on which the meeting of the general body of shareholders is held, in terms of section 81(lA) of the Companies Act, 1956, to consider the proposed issue.
(cb) Unlisted Companies - The pricing should be in accordance with Reserve Bank of India Regulations notified under Foreign Exchange Management Act, 1999]5
(d) the rate of interest payable on Foreign Currency Convertible Bonds; and
(e) the conversion price, coupon, and the pricing of the conversion options of the Foreign Currency Convertible Bonds.
5[(e)(i) Listed Companies - The conversion price of the Foreign Currency Convertible Bonds should be in accordance with para 5(4)(ca) ibid.
(e)(ii) Unlisted Companies - The conversion price of the Foreign Currency Convertible Bonds should be in accordance with Reserve Bank of India Regulations notified under Foreign Exchange Management Act, 1999.]

(5) There would be no lock-in period for the Global Depository Receipts issued under this scheme.

6. Listing of the Global Depository Receipts

The Global Depository Receipts issued under this schemes may be listed on any of the Overseas Stock Exchanges, or Over the Counter Exchanges or through Book Entry transfer Systems prevalent abroad and such receipts may be purchased, possessed and freely transferable by a person who is a non-resident within the meaning of section 2(q) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) subject to the provisions of that Act.

7. Transfer and redemption

(1) A non-resident holder of Global Depository Receipts may transfer those receipts, or may ask the Overseas Depository Bank to redeem those receipts. In the case of redemption, Overseas Depository Bank shall request the Domestic Custodian Bank to get the corresponding underlying shares released in favour of the non-resident investor, for being sold directly on behalf of the non-resident, or being transferred in the books of accounts of the issuing company in the name of the non-resident.

4 [ (1a) The Global Depository Receipts redeemed and underlying shares sold in terms of 7(1) of the Scheme may be reissued to the extent of such redemption and sale made in the domestic market. Such re-issuance will be in terms of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as amended from time to time and the guidelines issued in this regard. ]

(2) In case of redemption of the Global Depository Receipts into underlying shares, a request for the same will be transmitted by the Overseas Depository Bank to the Domestic Custodian Bank in India, with a copy of the same being sent to the issuing company for information and record.

(3) On redemption, the cost of acquisition of the shares underlying the Global Depository Receipts shall be reckoned as the cost on the date on which the Overseas Depository Bank advise the Domestic Custodian Bank for redemption. The price of the ordinary shares of the issuing company prevailing in the Bombay Stock Exchange of the National Stock Exchange on the date of the advice of redemption shall be taken as the cost of acquisition of the underlying ordinary shares.

(4) For the purpose of conversion of Foreign Currency Bonds, the cost of acquisition in the hands of the nonresident investor would be the conversion price determined on the basis of the price of the shares at the Bombay Stock Exchange, or the National Stock Exchange, on the date of conversion of Foreign Currency Convertible Bonds into shares.

8. Taxation of Foreign Currency Convertible Bonds

(1) Interest payments on the bonds, until the conversion option is exercised, shall be subject to deduction of tax at source at the rate of ten per cent.

(2) Tax on dividend on the converted portion of the bond shall be subject to deduction of tax at source at the rate of ten per cent,

(3) Conversion of Foreign Currency Convertible Bonds into shares shall not give rise to any capital gains liable to income-tax in India.

(4) Transfers of Foreign Currency Convertible Bonds made outside India by a non-resident investor to another non-resident investor shall not give rise to any capital gains liable to tax in India.

9. Taxation on shares issued under Global Depository Receipt Mechanism

(1) Under the provisions of the Income-tax Act, income by way of dividend on shares will be taxed at the rate of 10 per cent. The issuing company shall transfer the dividend payments net after deducting tax at source to the Overseas Depository Bank.

(2) On receipt of these payments of dividend after taxation, the Overseas Depository Bank shall distribute them to the non-resident investors proportionate to their holdings of Global Depository Receipts evidencing the relevant shares. The holders of the depository receipts may take credit of the tax deducted at source on the basis of the certification by the Overseas Depository Bank, if permitted by the country of their residence.

(3) All transactions of trading of the Global Depository Receipts outside India, among non-resident investors, will be free from any liability to income-tax in India on capital gains therefrom.

(4) If any capital gains arise on the transfer of the aforesaid shares in India to the non-resident investor, he will be liable to income-tax under the provisions of the Income-tax Act. If the aforesaid shares are held by the non-resident investor for a period of more than twelve months from the date of advice of their redemption by the Overseas Depository Bank, the capital gains arising on the sale thereof will be treated as long-term capital gains and will be subject to income-tax at the rate of 10 per cent under the provisions of section 115AC of the Income-tax Act. If such shares are held for a period of less than twelve months from the date of redemption advise, the capital gains arising on the sale thereof will be treated as short-term capital gains and will be subject to tax at the normal rates of Income-tax applicable to nonresidents under the provisions of the Income-tax Act.

(5) After redemption of the Depository Receipts into underlying shares, during the period, if any, during which these shares are held by the redeeming non-resident foreign investor who has paid for these shares in foreign exchange at the time of purchase of the Global Depository Receipt, the rate of taxation of income by way of dividends on these shares would continue to be at the rate of 10 per cent, in accordance with section 115AC(1) of the Income-tax Act. The long-term capital gains on the sale of these redeemed underlying shares held by non-resident investors in the domestic market shall also be charged to tax at the rate of 10 per cent, in accordance with the provisions of section 115AC(1).

(6) When the redeemed shares are sold on the Indian Stock Exchanges against payment in rupees, these shares shall go out of the purview of the section 115AC of the Income-tax Act and income therefrom shall not be eligible for the concessional tax treatment provided thereunder. After the transfer of shares where consideration is in terms for rupees payment, the normal tax rates would apply to the income arising or accruing on these shares.

(7) Deduction of tax at source on the amount of capital gains accruing on transfer of the shares would be made in accordance with sections 195 and 196C of the Income-tax Act.

10. Application of avoidance of double taxation agreement in case of Global Depository Receipts

(1) During the period of fiduciary ownership of shares in the hands of the Overseas Depository Bank, the provisions of Avoidance of Double Taxation Agreement entered into by the Government of India with the country of residence of the Overseas Depository Bank will be applicable in the matter of taxation of income from dividends from underlying shares and interest on Foreign Currency Convertible Bonds.

(2) During the period, if any, when the redeemed underlying shares are held by the non-resident investor on transfer from fiduciary ownership of the Overseas Depository Bank, before they are sold to resident purchasers, the Avoidance of Double Taxation Agreement entered into by the Government of India with the country of residence of the non-resident investor will be applicable in the matter of taxation of income from the dividends from the said underlying shares, or interest on Foreign Currency Convertible Bonds, or any capital gain arising out of transfer of underlying shares.

11. Gift-tax and Wealth-tax

The holding of the depository receipts in the hands of non-resident investor and the holding of the underlying shares by the Overseas Depository Bank in a fiduciary capacity and the transfer of the Global Depository Receipts between non-resident investors and the Overseas Depository Bank shall be exempt from wealth-tax under the Wealth-tax Act, 1957 (27 of 1957), and from gift-tax under the Gift-tax Act, 1958 (18 of 1958).

Additional Information to be Filed by Companies Applying for Permission to Float Global Issues

1. Name of the Company and Address for Communication.
2. Existing Business
3. Profile on Project Expansion/Diversification Project with break-up requirements of Rupee and F.E. Components
4. Existing Resources

Equify

Year ending in March

Debt

Year ending in March


1993

1992

1991


1993

1992

1991

(i)


(i)

Secured Loans

(ii)

Issued & paid-up Capital

(a) Banks & FIs.

(iii)

Reserve & Surplus

(bj Debentures

(a) General Reserve

(c.) Other Loans

(b) Development Rebate Reserve

(ii)

Unsecured Loans

(c) Investment Allowance Reserve

Deposits & Loans

(d) Capital Reserve

Deferred Liabilities

(e) Other Reserves

(iii)

Current Liabilities Over Drafts from Banks and other short-term Borrowings

5. Fixed Assets

I. (i). Gross Block
(ii) Additions and Accretions during the year
(iii) Depreciation
(iv) Net Block

II. Work in Progress


Year ending in March


1993

1992

1991

6. (i) Sales and other income
(ii) Operating Expenses
(iii) Interest on Loans
(iv) Profit before Depreciation
(v) Depreciation
(vi) Profit Before tax
(vii) Provision for Taxation
(viii) Profit Before Appropriations
(ix) Dividend and other appropriations
(x) Profit Transferred to General Reserves




7. Capacity and Utilisation

Products

Year

Units

Installed Capacity P.A.

Production during the year

Capacity Utilisation Percentage


Year ending in March


1993

1992

1991

8. Financial Results and Management Ratios

(i) Net Worth
(ii) Capital employed
(iii) Capital turnover Ratio
(iv) Equity-Debt Ratio (long-term)
(v) Profitability

(a) Profit margin

Net Profit
........................... x 100 = %age
Income

(b) Return on equity

Net Profit
................ x 100 = %age
Equity

(c) Return on Net Worth

Net Profit
....................... x 100 = %age
Net Worth

(d) Return on Total Investment

Net Profit
....................... x 100 = %age
Total Investment

(e) Return on Total Capital employed

Net Profit
........................ x 100 = %age
Resources

(vi) Liquidity Ratio

Current ratio = Current Assets / Current Liabilities

(vii) Revenue per worker for the year

Income / Total Employment

9. Statutory Liabilities

(Disputed and otherwise) and Defaults

10. Defaults in respect of interest/instalments to Loans from Banks/ Financial Institutions

11. Exports and Imports

(a) Free on board value Export
(b) Exported to (Countries)
(c) Imports

(i) Capital Equipment
(ii) Materials, Components Consumables

(d) Other Foreign Currency Expenditure
(e) Foreign Debt Liabilities




12. Salient features of the prospective corporate plans and diversification proposals with special reference to foreign exchange requirements.

Format of Approval for Finalising the Issue Structure

F. No. Government of India
Ministry of Finance, Department of Economic Affairs
(Investment Division)
New Delhi

Dated the.................

To
M/s............................................

Subject: Your Application for a GDR/ADR/IDR issue for an amount of................

Dear Sir,
I am directed to refer to your Letter No................. dated............ on the subject mentioned above and to convey Government of India's approval 'in principle' to the mobilisation of foreign currency resources equivalent to.......... through issue of GDR/ADR/IDRs to cover the Foreign Currency needs for your............ projects and other related corporate needs.

2. The approval is subject to the understanding that the foreign currency resources raised through the proposed issue should be mandatorily remitted to India immediately after the issue.

3. This approval is valid for a period of six months from the date of issue of this letter.

4. You are now requested to finalise the detailed parameters of the proposed GDR/ADR/IDRs offering for consideration and final approval by the Government of India.

Yours faithfully,
()
Director (Foreign Investments)
Tel:

Indicative items of final approval for Foreign Currency Convertible Bond Issues

Issuer

Optional Redemption by Issuer (Call)

Lead Manager

Optional Redemption by Investor (Put)

Co. Lead Manager(s)

Form and Denomination Status

Principal Amount

Cross Default Provisions

Currency

Negative Pledge Provisions

Issue price (and premium, if any)

Taxation

Coupon (and payment dates)

Commissions

Conversion Premium

Reimbursible Expenses

Maturity

Governing Laws

Listing of Bonds

Indicative items in the final approval for Euro-Equity Issues through GDR Mechanism

Issuer

G.D.R. Listing

Lead Manager

Underlying Shares Listing

Co, Lead Lead Manager(s)
Overseas Depository Institution
Indian Custodian

Standstill period (No further equity shares, or interests in
equity shares, for a specified time period from the
date of issue)

Issue Structure and Denomination (No. of underlying
shares represented by the GDRs).

Issue Amount (Principal amount)

Trading provision
Settlement provisions
Selling Commission

Greenshoe Option (Additional amount in %age terms
which may be retained if offered)

Warrants attached, if any

Underwriting Commission and Management Fees

Legal Expenses, Printing Expenses, Depository Fees, and
other out of pocket expenses.

Currency of issue

Governing Laws

Footnotes:

1. Inserted by the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) (Amendment) Scheme, 1999

2. Inserted by the Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) (Amendment) Scheme 2000 with effect from 16 June 2000.

3. Inserted by the Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) (Amendment) Scheme 2001, vide Notification No. GSR 687(E), dated 8 September 2001 with effect from 15 September 2000.

4. Inserted vide Government Press Release dated 13 February 2002, with retrospective effect from 23 March 2001.

5. Inserted vide Press Note F.No.15/4/2004-NRI dated August 31, 2005 issued by the Government of India, Ministry of Finance and the Government Notification dated August 31, 2005.

 

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