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Unlisted Cos to list locally before listing overseas
By agencies
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Thursday, 01 September 2005, 19:30 IST
NEW DELHI: In a major clampdown on unscrupulous promoters tapping the overseas markets, the finance ministry has barred unlisted companies from floating ADR/ GDR issues to raise funds abroad. Such companies will now require prior or simultaneous listing in India.
Amending the guidelines for issue of ADRs/ GDRs and foreign currency convertible bonds (FCCBs) on Wednesday, the ministry has also said unlisted companies, which have already raised funds abroad must be listed in India in 2005-06 if they are profit making. Others would be required to do so within the next three years.
Further, listed companies, which have been barred from raising funds domestically, would also not be allowed henceforth to tap the ADR/ GDR route. Government officials said some companies, which were, barred post the joint parliamentary committee on stock scam from issuing capital in the domestic market had raised money abroad. This will plug the loophole, an official said.
There has been a spate of FCCB and ADR/ GDR issues during the last two years. One of the primary reasons for clamping down was also to prevent the export of market from India. We want quality stocks to expand their equity here and add to the float, the official said. He added, the other reason was to block access to capital for unscrupulous companies, barred from tapping the domestic market.
With these amendments, the ministry has now aligned the ADR/GDR guidelines with the norms for domestic capital issues. Further, voting rights consistent with the Company Law provisions have been made applicable on GDR issues. These essentially relate to banks, where the Reserve Bank of India caps the voting rights at 10 percent.
The ministry also disallowed erstwhile overseas corporate bodies (OCBs) that dont qualify to invest in India through the portfolio route and entities prohibited to buy, sell or deal in securities by Sebi from subscribing to foreign currency convertible bonds and ordinary shares issued under the GDR mechanism.
The market regulator has recently expressed concern over the aggressive use of ADR/GDR route, which, it thinks, has deprived domestic retail investors their due share in capital issues.