Corporates look at new ways to raise cap as DRs lose favour

With the depository receipts (DR) route under regulatory watch, global securities firms are proposing an alternative instrument for allowing investors access to the Indian stock markets. CNBC-TV18's Mitra Joshi reports.

Currently, India only allows depository receipts route for raising capital and listing on international exchanges - but the instrument has fallen out of favour of Indian regulators. An alternative is now being pitched for India.
Over the counter non-capital raising depository receipts -- an instrument that securities firms claim is allowed by 67 countries across the world. In a recent report, BNY Mellon has now proposed this route for listed Indian firms, with 5-10 percent of the current outstanding shares being submitted into the DR programme subject to issuance limits as well as sectoral foreign investment caps. (Also read: Indian firms raise Rs 2.81 lakh cr in Apr-Dec 2012: Survey)
Speaking to CNBC-TV18, Sandeep Parekh, founder, Finsec Law Advisors says: "It is a good thing to simplify the process for foreigners to invest in India without coming through a QFI, FDI of FII or all the convoluted Mauritius structure. It’s kind of a clean and nice way because it has traded on us shores so is likely clean money. US also stresses to go through their KYC."
But this would have to first pass muster with the Indian government and regulators - especially as there could be reservations on account of possible problems with take-over and insider trading regulations among others.
Parekh says: "If you acquire more than 5 percent ADRs, you will not be making disclosures under take-over regulations so to that extent bypassing Indian laws on issues like insider trading, take-over etc. I think with that caveat, blue-chip companies should be allowed to be listed abroad without capital participation. So I would say liberalization but with some caution."
While DR route so far has been used by companies to expand globally and create branding for their companies, the non-capital raising DR route could well be an option for companies that don't need immediate capital raising but can do with some global investor interest.