Chapter 9

Foreign Funding - Instruments & Institutions

RegulatoryFramework In India
Ssue of ADR/GDR/FCCBs/FCEBS are regulated by the following regulations in India:
he Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism)Scheme,1993.
2. Foreign Currency Exchangeablè Bonds Scheme, 2008
3. Depository Receipts Scheme, 2014
Notifications/Circulars issued by Ministry of Finance (MoF), GOI
5. Consolidated FDI Policy,
6. RBI Regulations/Circulars
A. Companies Act and Rules
thereunder
8. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Euro Issue

Euro issue means modes of raising funds by an Indian

company outside India in foreign
currency. There iare different modes of Euro issue which is as follows:

.Euro lssue

Foreign Currency Convertible Bonds /

Foreign Currency Exchangeable Bonds Depository Receipts

American Depositor÷ Global Depository Receipts

Existing Shares
From Euro Market

Fresh shares
From Us Market

9.2

Shubhamm Sukhlecha (CA, CS, LLM)

 Any' freely \conyertible Forelgn ndian Rupee (INR
Forms of ECB Currenicy
Loans includingbank loans; Loans including bank loans;
floating/ fixed rate notes/ bonds/ floating/ fixed rate notes/ bonds/
debentures (otherthan fully and debentures/ preference shares
compulsorily onvertible(other than fully and compulsorily
instruments); Trade edits convertible instruments): Trade
beyond 3 years; FCCBs; FCEBS andcredits beyond 33Years; and
Financial Léase. Financial Lease. Also, plain vanilla
Rupee denominated bonds issud
overseas (RDBS), which can be
either placed privately or listed on
exchanges as per host country
regulations.
Eligible borrowers All entities eligible to receive FDI. Further, the following entities are also
Blgible Restcbot eligible to raise-ECB:
a) Port Trusts;
b) Units in SEZ;
c) SIDBI;
d) EXIM Bank; and
e) Registered entities engaged in micro-finance
registered
activities, viz,
Not för Profit companies, register
societies/trusts/cooperatives and Non- Government Organisatídis
(permitted only to raise INR ECB).
Question: Are LLPs eligible to raise ECBS?
Answer: As LLPs are not eligible to receive FDI, they cannot
raise ECBs

Recognised lenders The lender should be resident of FATF or I0SCO compliant

cOuntry,
including on transfer of ECBs. Howevèr,
a) Multilateral and Regional Financial Institutions where India is a
member cOuntry will also be considered as recognised lenders;

9 4 Shubhamm Sukhlecha (CA. CS. LLM)

 foreign
theyare
permittedif listed
only be bonds/debentures
lenderscan
subscrlptlonto
Individualsas permittedas
holdersorfor are
banks andFCEBs).
equity
poroad;and /subsidiariesofIndian
(exceptFCCBS to
shForeignbranches only for FCYECBIndian banks, subject
arrangers/
recognisedlenders subsidiaries of participate as
branches/ denominated
Foreign prudentlal norms, can for Rupee foreign
uhderwriters/market-makers/traders
applicable underwriting by Indian
overseas. However, by
jssued Indian banks for issuances
boots OBondsbranches/subsidiaries of
allowed.
ke wndstusite oort hah k bankswl.hotbe years. However,
(MAMP) will be 3
Sakty períod of 1 year
Minittium averagematurity, may raise ECBs With MAMP financial year.
Average Maturity companies per
Minimum manufacturingsector million or its equivalent for
Period USO 50 holder and utilised
for ECB up to (S raisédfrom foreign equity repayment of
Further, if the ECB: general corporate purposes or if any, shall
USD Som working capital'putposes and put option,maturity
loans, MÄMP will be 5 years. The call
minimum average
abtal. Rupee of
priot to'completion
not be exercisable
holkles spread.
All-in-cost ceiling per annum Benchmark räte plus 450 bps
breach of
any, for default or
!

Penal interest, if
Prepayment charge/ and above the
Other costs should not be more than 2 per cent overamount and will
feral int lhage covenants outstanding principal
contracted rate of interest onthe
celing.
abwue thel be outside the all-in-cost
Q
Comected Rode list, for which the ECB proceeds cannot be utilised, would.
End-uses (Negative list) The negative
include the following:
a) Real estate activities. I
b) Investment in capital market.
c) Equity investment,
foreign equity holder.
Yd) Working capitalipurposes except from foreign equity holder.
from
e) General corporate purposes exceptfrom foreign equity holder
f) Repayment of Rupee loans except activities
above
g) On-lending to entities for the
For conversion to Rupee, exchange
Change of currency of FCY ECB rate shall be the rate prevailing on
Exchange rate into INR ECB can be at the
the date of settlement.
exchange rate prevailing on the
date of the agreement between
6ate ot the parties concerned for such
goonort .change or at an exchange rate,
which is less than the rate

a ledor prevailing on the date of

|eun sude(e agpel agreement, if consented to by

the ECB lender.

Hedging provision The entities raising ECB are The overseas investors are eligible
required to follow the guidelines to hedge their exposure in Rupee

9.5
10. 1
 tor hedging issued, if any, by the through permitted derivative
concerned sectoral or prudentlal products with AD Category I banks
regulator in respect of forelgn in India. The investors can also
Currency exposure. Infrastructure access the domestic market
Space companies shall have a through branches/subsidiaries of
board approved risk Indian banks abroad or branches
Inya Co management policy. Further, of foreign banks with Indian
Such companies are required to presence on a back to back basis.
mándatorly hedge 70 per cent of
their EÇB exposure in. ' case
average maturity of ECB is less
than 5 yeàrs. The designated AD
Category' bank shall verify that
70 per cent hédging tequirement
0s complied wih during the
currency of.ÉCB and report the
position to RBI throughi Form ECB
2 returns. The following
operational aspects with respect
to hedging should be ensured:
a) Coverage: The ECB borrower
will be required to cover
Iding fos principal as well as coupon
through financial hedges. The
Poircipe Arnt financial hedge for all
exposures on acCOunt of ECB
should start from the time of
each such exposure (i.e, the
day liability is created the
books of the
b) Tenor andborrower).
rolover: A
minimum tenor of one year
of financial hedge
required with
would be
periodic
rollover duly ensuring that
the exposure on account of
ECB 0s not
point duringunhedged
atany
the currency of
ECB.
c) Natural Hedge: Natural
hedge, in lieu of financial
hedge, will be considered
only to the extent of off
projected cash flow/revenues
in matching currency, net of
all other projected
For this purpose, an outflows.
ae Cunony be ECB may
considered naturally
hedged if the off exposure
has the maturity/ cash
flow

Shubhamm Sukhlecha (CA,CS, LLM)

 her

INR to
grrenoy fom
Cange
of
Convertible foreign
freeky
Change ovébie foeen any yisnot permitted.
Change of currency od borrowing
one heehy ther freey
currercy to m
Corerbie tork Curesg
weS0ysfopem

G in Sotayo day. deato D00 n

in rico loO

Gnthe

C.hiihhamm Sukhlecha !CA TS!M)

 LIMITS
() The
individual limits of under the automatic route
by eligible entities for ECB which can be raised in afinancial year
all the three tracks are set-out as under:
a s 50 million or equivalent for the companies in infrastructure and
manufacturing sectors, Non-Banking Financial Companies -Infrastructure Finance
Companies (NBFC-FCs), NBFCS-Asset Finance Companies (NBFC-AFCS), Holding
Companies and Core Investment Companies;
O opto USD 200 million or equivalent for
c) Up to USD 100 companies in software development sector;
million or equivalent for entities engaged in micro finance activities; and
d) Up to USD 500 million or
(") ECB proposal beyond the equivalent for remaining entities.
aforesaid limit will come under the
Computation of indiv+dual limits under Tract |l. exchange rate approval route. For
agreement should be taken into account. prevailing the date of
on
(1) In case the ECB is raised from direct
subject to ECB Liability equity: ratio equity holder aforesaid individual ECB Limits will also
The ECB Liability of the borrower requirement.
towards the foreign equity holder (including alloutstanding ECBs and the
should not be more proposed one)
contributed by the latter. This ratio will not be than seven times of the equity
is upto USD'5 million or applicable if total of all ECBS raised by an entity
urrency of 1. ECB can be equivalent.arnai
raised in
Ji
Borrowing any freely convertible currency as
2. For well as in INR. AOdgi cs2
INR-denominated,
holders)
ECB, the
are, fequiréd to motbili_enon-resident lenders(other than foreign equity
INR through
3. Change of Category |,bank in lndia. mode 2 swaps/outright sale. undertaken
through AD an
foréign currency from one convertible foreign
4. Change of currency/INRis freely permjtted. modat currency to another convertible
5. Rate for currency from INR to any foreign currency is,
change or
conversion into INR: the rate prevailing on.the however,not permitted. modd2
any'toexchange rate lower than date of agreement for such
if consented the rate prevailing on the date of agreement
onversion of Conversion of ECBsby the ECB lender. ocla
ECBs into
unpaid) subject to theinto equity is permitted
Eauity The activity of the following conditions: (including those which are matured but
or approval route borrowing company is covered
from the Foreign under the automatic route
applicable, for foreign equity Investment Promotion Board
for FDI
policy; CoxHion
The
participation has been obtained as per the wherever
(FIPB),
cost, conversion, which extant FD
willnot result in shouldofbe with the lender's consent and
Applicable pricing guidelines breach applicable sector cap on without any additional.
for shares are the foreign equity hold
IfReporting requirements should be fulfilled: complied with;
the borrower
banking system, includingconcerned has availed of other credit
guidelines issued by the overseas of facilities from the Indian
on
le Consent restructuring
of other
Department
are complied with; branches/subsidiaries,
and Banking Regulation of
the applicable
RBI, including prudential
information regarding lenders, any, to the same
if
borrower is
guidelines
conversions is exchanged with otheravailable orofatleast
9.8 lenders the borrower.
Shubhamm Sukhlecha (CA
 Depository Receipts
A
Depository Receipt (DR) is a negotiable financial instrument issued by a company in aforeign
jurisdiction. They represent certain securities like bonds, shares etc.BR is an important
mechanism for raising funds by tapping foreign investors who otherwise may not be able to
participate
In
in the domestic
market.
India, any company, whether listed or unlisted are capable of issuing DRs. The issue of DRS is
regulated by Ministry of Financeand bythe DepositoryReceipts Scheme, 2014. Depending
upon the location in which DRS are issued, thev are called as
("ADR")or in generalas Global Depository Reciepts American Depository Receipt
(GDRS).
Depository Receipts are generally classied às under:
1. Sponsored- Asponsored issue of deposttoró receipts is
the foreign depository and the issuer of securities for thebased on a ofstock agreement, between
The sponsored depository receipts can be creation the depository receipts.
further classified as:
Capital Raising The lndian iasuer dposits the freshly issued
securities with the domestic
qustodian: On the basis of.such deposit, the foreign depository then
creates/issues depository receipts abroad for sale to global
constitutesa capital raising exercise, as the proceeds of theinvestors.
sale of.
This
depository, receipts eventually'go tothe Indian issuer.
Non-Capital Ina non-capital raising issue, nÍ fresb underlying
securities are issued.
Raising Rather, the issuergets holders of its existing, securities
securities with.a domestic custodian, _o thatidepositorytóreceipts
deposit these
can be
jssued abroad by the foreign depository. This is not a
forthe Indian issuer, as the proceedsifrom the sale of thecapital raising exercise
goto the holders of underlying,securities. depository receipts
2. Unsponsored- Where there is no stock
Indian issuer,any person, without any agreement between theforeign depository and the
involvement.of the issuer, may deposit the securities
with adomestic custodian in India. Aforeign
on the back of such deposited depository then issues depository receipts abroad
underlying securities. The proceeds from the sale of such
depository receipts go to the holders of the underlying securities.
depository receipt is traded in an organised market or in the Over Based
the
on whether a
the depository receipts can be classified as listed or Counter ("OTC") market,
unlisted.
Listed Listed depository receipts are traded on stock
Unlisted The unlisted depository receipts are those exchanges.
partles and where such depository receiptswhich are inter-traded between
are not listed on any stock
exchanges.

9. 10
 Depasbay
fequmement
GR
5SR

ReJ Gudelnes
’co.to abortmpl
spctato ense cerplarre
ssued Pouvte placerners
dafortsay Bar
nol- less thon the Paice co;
whicoa shas
Sndrg

Holdes C
Cepaatag
ometic
Custalo
RL

9. 11

Shubhamm Sukhlecha CA, CS, LM)

 Depository Receipts Scheme, 2014
Eligibility
For Issue Of
Tne rolowing persons are eligible to issue or transfer permissible securities to a
foreign depository, for the issue of deposftory receipts:
Depository
Receipts
Anyindian company, Jistedor unlisted, private or public;
Any other issyerof permissible securities;
Any person holdleg permissible:securities
which has not been specifically prohibited from accessing the capital market or
dealingin secytties. ntpohsored depostory receipts on the back of the isted r
permissitle securities cah bÇlssued onlyif suchdepository receipts gave the
holder the right tojssuevotlng irstriüctioh änd are listed on an international
Issue Of
exchange.
Depository
Th¹ aggregate o parmissible seçurities which may be issued or
transferred to farelgh dpo_itories for issue of depository receipts, along
Receipts with permissible securties alreadyheid by persons resident outside
esstlio thdia sh¡l not extetathe linmnt on foreign holding of such permissible
securities under:the FEMA, 1999;
The deposiory receiptsymay be conyerted to underlying permissible
securities and vice versa;
ii. A foreigh depository mayissue depository receipts by way of apublic
hite limitd en oftering or pivate placement of in any other manner prevalent in a
permissjble jurisdiction,
iv.
An.issuer may issue:permissible seçuritiesto a foreign depository for the
purpose of issye.of depository receipts by any mode permissible for
i_sue iof such permissibleseduritiesto investors;
V.
The bolders of permissible
to a foreign depository forsecurities.may
the
he
transfer permissible securities
tu fryate rn receipt with or without the purposp of theissue of depository
securities throughhtransactiohsonapproyal of issue of such permissible
a. recogoized
transactions or bytendering through apublicplatform;
vi. The
stock.exchange, bilateral
ry permissible seçurities shallnot be issued to aforeign
the purpose of issulng depository for
depository recelpts at à price less than
rddSal NOn2 applicable to a corresponding. modeof i_sue
the price
Shae (ry vii.
domestic investors under the applicable laws; of such securities to
Any approval necessary for:issue dr
person resident transfer of. permissible securities to a
outside India shall apply to the issue or
permissible securities to a foreign depository for the
transfer of such
depository recelpts. Subject to this the issuÇ of purpose of issue of
not require any approval depository receipts shall
in acçordance with the from any government agency, if the
scheme. issuance is
. to Ouß
nt be issued t IC Sc.

Shuhhamm Skh CA CS
 ae. -e gheme

ohat to Jrden deostuos Gusb/COs)

to
Se
O-osdirde
" de sserorae int
no.c-she tos
when OR houe

to sebst to SEN Tem ondition OR. issued

poeusen
re oublk ry nestos cn Ceuet his De ntoite
urdesyg shaes
ConLeSI undosyrghdenchago.
inuestor Cn g9nuert hs e intothe
Cordau folos 2 Undesurg shne
ksugnc e is pomted to the etont
DR cohdh cay oodeerned
d

9. 13 urdesrg Sraoe
ha (CA, CS, LLM)
 domestic custodian
obligations on the
certain
Obligations Clause 8 of the scheme imposes
related to the issue
and
which are provisions of thescheme
the relevant
o ensure that depositoryreceipts is complied with; Indian depositories all
cancellation of to,
records inrespect of, and report
cancellation of depository
receipts
to maintain issue and
transactions in the nature of limits'under the FEMA, 1999; the RBI,
of m¡nitoring
tor the purposeinforrnation data as may be called upon by SEBI,
and
to providethe
Ministry of Finance,
and any other authority of law; andcalled, which
Ministry bf Corporate Affairs whatever name
of the dócument by on the back of
to file withiSEBI a copy depository receipts issued
of issue of permissible
sets the terms Section 2(h) of SCRA, 1956, in a
Securities, a's definedunder
jurisdiction. Depositories that
obligatioDs imposed on the Indian
The following ar the
they shallco-ordinate arnong themselves;permissible securities against which
outstanding
they shalldisseminate the outstanding; and
the depository receipts are securities can be
disseminate the limit up to which permissible
they shall
converted to depository receipts. depository
issuing or transferring permissible securities to a foreign
Aperson
the issue of depository receiptsshall comply with relevant
for the purpose of
scheme, related to the issue and
provisions of the Indian law, including the
cancellation of depository receipts
transfer: of permissible securities to a
Approval Any approval.necessary' for issue or. issue or. transfer of such
shall apply to th
Abo p per_on resident outside Indiaforeign depository for the- purpose of issue of
securities tó a
iAYe H6 n kod permissiblereceipts. No approval is required if the issue of depository receipt is
bdepository
e
Win accordance with the scheme.
PHicingo Price of permissible securities issuèd to foreigni depository for the purpose of
issuing depository receipts shall not be less than price if such security issued to
domesticinvestors.
Explanation l:
Acompany listed or proposed to be listed on a recognised stock exchange shall
not issue equity shares on preferential allotment to aforeigndepository for the
purpose of issue of depository receipts at a price less than the price applicahle
to preferential allotment of equity shares of the same class to investors utlef
ICDR.
Explanation :
Whereasalisted company makesaqualified institutional placement of.
permissible securities to a foreign depository for the purpose of issue of
depository receipts, the minimum pricing norms of such placement is applicable
under the SEBI (ICDR) Regulations, 2009 shall be complied with.
listed CO

9 14
Shubhamm Sukhlecha (CA, CS, LLM)
 depository
form of Global
the (ADR),
securities in
Receipts Bonds
issue Convertible
ADR/GDR India
in
Depository
Currency FCCB is
a
companiesAmerican instruments,
TYpically, Foreign
(DR) viz or
(GDR) equity 1993
DR/GDR receipts Receipts GDR are GDR. The
Depository ADR and ADR and
Convertible debt instrunent. applicable to
While (Transfer or
(FCCB). solely
is Management under:
Scheme 2014 govern FCCB.
Exchange ADR as
The DRcontinuesto Foreign defines issuedbyo
Scheme the Regulations, 2004 securtty ogainst
of Security) meansa (USAJ
Regulation 2(c)
Foreign Recelpt (ADR America
ofAny Depostony States of ndia." Issue
Issue United Incorporatedin
"Americon depostoryin company Management(Transfer or
bank oro rupee shares of oExchange definesGDRas under:bank
underhing
oftheForeign
Regulations,2004, securityissuedbyo
2(i)
Regulation Security) meansa shareso a
Foreign (GDR)" underlyingrupee
ofAny DepositoryReceipt ggainst
"Global India
depositoryoutsideinIndia." US.
ora incorporated
and tradedonlyin YorkStock
company denominated
are US $ places suchas New
ADR various
erernce between tradedin etc.
GDRSare
London StockExchange,
erican Exchange,
ositoy Receipts
R) and Global this
ADR/ GDR. Under
ositoy Receipts of
sponsoran issueshareholders
company can also achoice to
R) An Indian offers its resident basis ofsuch
nsoed mechanism, the company the compariyso that on the of the ADR/
back to
R/GDR 0ssue submit theirshares be issued abroad. The proceeds the
can
shares, ADRS / GDRs baçk toIndia and distributed among
denominated shares
GDR0ssue are remitted had offered their Rupee
Foreign
resident investors whoproceeds can be kept in Resident
shareholders
for conversion. Theseaccounts in India by the resident
Currency (Domestic) shares for conversion into ADRs/ GDRS.
who have tenderedsuch scheme has been put in place by the
Fungibility
Alimited two-way
Way FungibÄity Government Under this Scheme, a stock
of India for ADRs / GDRS. Indian
eme India, registered with SEBI, can purchase shares of an
broker in
company from the market for conversion into ADRS/GDRS based on
Re-issuance of ADRS
instructions received from overseas investors.
Would be permitted to the extent of ADRs / GDRS which have
GDRS
the Indian market
been redeemed into underlying shares and sold in
Ebility to issue Rule 3 lays down that a company may issue depository receiptsrelevant
Pository receipts provided it iseligible to do so in terms of the Scheme and
provisions of the Forelgn Exchange Management Rules and
Regulations.

Shubhamm Sukhlecha (CA. CS. LLM)

 receipts.
depository
form of issue
of offering
manner and issued by wayof public abroad
Manner and form of Rule S deals with the can be prevalent
depository receipts in any other manner listing or trading
depository receipts The placement or an overseas
or private listed or traded in new
and may be against issue of
issued by
platform.
depository receipts may be against shares heldsuch
Z. The sponsored with
be company in accordance
shares or may Bank of India
shareholders of the Government or Reserve
Central
conditionsas the from time to time. the
or specify the nameof
may prescribe sharesshall be allotted in shares, the
underlying againstsuchoverseasdepository
3. The
Overseasdepositorybank and
issued by the
depositoryreceipts shallbe
depository receipts
bank abroad. rights of
provisions for voting
Voting rights Rule 6 provides the member of the
holder. receipts may become a conversionof
holder of depository as such only on
1. A entitled to vote following the
Company and shall be underlying shares after
this Act.
receipts into the provisions of depository
the depository Scheme and
procedure provided in the depository receipts, the
overseas
conversion of depository
2. Until the vote on behalf of the holders of
shallbe entitled to agreement
the provisions of the depository
receipts:in accordance with
depository,holders of
entered into btween the this regard.
receipts and the company in shall either be
the proceds of issues of depository receipts operating abroad
Proceeds oflssue Rule 7 provides that deysited in an indian bank
(itted to a bank accountisinalhdia.or
Scheduled Bank'under the Reserve
Bank of India Act,
o S foreign bank (which Indià with an agreement that the foreign bank having
1934) having operations in responsibility for furnishing all the information which
operations in India shall take a'sponsored issue of Depository Receipts, the
and in the event of
may be required the respective bank account of
the
proceeds of the sale shall be credited to
shareholders
thereunder insofar as
1. The provisions of the Act and any rules issued
Nonapplicability of debentures shall not apply to
certain provisions of they relate to public issue of shares or
issue of depository receipts abroad.
the Act name called and if prepared for
2. The offer document, by whatever
be treated as a
the issue of depository receipts, shall not
of this Act
prospectus or an offer document within the meaning
offer
and all the provisions as applicable to a prospectus or an
document shall not apply to a depository receipts offer document.
Soudesqet
3. Notwithstanding anything contained under section 88 of the
Companies Act, 2013, until the redemption of depository receipts,
the name of the overseas depository bank shall be entered in the
Register of Members of the Company.

R Shubhamm Sukhlecha (CA. CS. LLM)

 issue
DR
.tho
dets
all-the
dass
|He

Cal Em
Atro a comn,o
ABeaor fallondrY
Bü
|ossSR Ct the
tOned otalas
f q moF

Jnteromedits med

Dsrreslc Cudodien
lead rmorgor r6)
Co.lead (co . rroraqe.
under watecs
-t3

Aduso
\egal
Psntess

9 19
Shubhamm Sukhlecha (CA, CS.
Procedure For Issuance Of ADR'S/GDR'S
Approvals requires the approval of aBoard ofDirectors,
Required Ine issue of ADRS/GDRs Final" approval of Ministryof Finance,
Shareholders, "In priniple and
In-principle consent of Stock
dpproval ofReserveBankof India, and In-principle consent of
Exchange for ligting of underlying shares
Financialinstitutigns to be held for approving
Approval Of
Board of 1 AmeetiheofBóard ofDirectors ls required Capital market. Aboard
Directors the propbseltó raise money from Euro finance by issue
esolutionls to be passed to approve the raising of
(of GDRS/FCCBs,
2 The cesolutlonshould frndicate therein specific purposesfor which
Tunds are requird, quantum ofthe issue, country in which issue ls
tobe launched, tlime of the ssue etc. Adirector/Sub-Committee of
Board of piretorsis also to be authorised for seeking Government
approvalín connection with-Euro issue and signing agreements
with depostory, organising road shows for fixation of price of
GDRS,
3. The Bbard rheeting shall also decide and
approve the
Extraordhary general meeting of shareholders at whichnotice of
special
Approval Of resolution is to be consideted.
Propbsal for making Euro issue,
|Shareholders require approval of shareholders.asAproposed
special
by Board of Directors
of the Companies Act,
2013 is required to beresolution
passed
under Section 62
Approval Of general meeting of the at a duly
convened
Ministry Of With respect to ADR/Gshareholders
DR,
of the
company.
Finance "In 2000 brought ADR/GDR guidelines issued on the subject dated
under the automatic route 19-1
Principle And requirement obtaining approval of Ministry of and therefore the
of Economic
of
Further, privateAffairs
Final" has been
placement of
dispersed with. Finance, Department
in-Principle approval provided the issue isADR/GDR will als0 not require prior
has tò makemanaged
The issuing by
Consent Of company invest ment banker.
Exchanges ForStockexchange
shall be
for
in -principle consent
a
for
request to the
domestic
Listing Of
released
lying in the custody of listing of undertying stock
Indian stock custodian afterdomestic custodlan. These shares which
by the
Underl y ing of GDR, are shares, when
Shares
In-PrincipOfle Where term exchanges cancel
like any other lation
equity shares. traded on
Consent
Financial financial instiloans have been
the obtained by the
Institutions stobtipaulinaed.tionThethattutitheons,consent of the relating tocompany
agreement the loanfrom the
terms of the company must obtainfinancial institution hascontains a
proposed issue in-principle consent on the to be
brod

Shubhamm Sukhlecha (CA, CS,

LLM)
 S u b p l n

orae doanotn

Trdenco -
depoatry
Comeslhc
artajan
daçrtg

Cstodan

9. 21
Chuthamm Suniiecig (LA, 3, LLM)
 Principal Documentation
and other
managers
Managers
Subscription 1. Subscription Agreement jointly,
Agreement
providesthat Lead
withthe company,
subject tothe
satisfaction
price set forth. It
agree, severally and not GDRs atthe offering
certain conditions
of certaln conditions, tosubscribe for aresubject to
of managers
may provide th¡t oblikation_
precedent: for certalin periodfromthe
2. agreemeht may also providethat
Subscriptionissuante of GORthe issuing
company will not
date of th otherwise issue or publicly announce any
issuance of,ior
4) sutharise the otherwise
Antehflon to issue sibscriptión for, sell,contract tosell or
b) issu bfer, accep withinor outsideindia; or
dispose of, whether of the company
receipt facility, any securities
c) deposit hto any deposipryr or the shares or any securities in the
r tne same clss
asthefGDRs securities in the companyof
çompany.tonvértible or'exchangeablefororother instruments
theGDRS ortheshates companyof the same class as
the Same classas securitles in the
representing interësts in
the GDRs or the shares. arrangements enteredintoby
Deposttory Depository Agreement lays down.thedetailedandtermsof thedepository
Z.
Agreement the Depositor,the forms shares. It also sets forth the
the côompanywith represented by the deposited all
reçeipts which are depository in respect of the deposited shares and
rights and duties of the property reçeived subsequently in respect
of
other securities, cashand other agreement
deposited shares. Holdersof GDRsarenot partiesto depositcompany.
Such rightsdgainst.or obligations tothe
and thushave no contractual depositagreement to indemnify the
2. he company mayagree in the againstany
theirrèspective affiliates
depository, thecustodian andCertain ofwhich mayarise out ofor in
ofany kind
foss, liability, tax orexpenseissuahce,
connectionwith any offer, sale, resäle,traHsfer, deposit.or
Copiesof deposit agreement
withdrawalof GDRS, or any offerjng'document. is
are to be keptat therincipaloffice of Depository andthe Depositoryhours,
inspeçtion.during its normalbusiness
required to make available for notiçes, reports or communications
andany
the copies of deposit agreement
received frÍm the company.
co-ordinationwith the depository andhas to observe all
Custodian 1. Custodian works in mentioned in the depository
Agreement obligations imposéd on it including those the depository. In the case
agreement. The custodian is responsible solely tolegal entity, references to
same
of the depository and the custodian being
agreement or otherwise imay be made for
them separately in the depository for discharging both
conveniernce and the légal entity will be responsible
functions directly to the holders and the company.

Shubhamm Sukhlecha (CA, CS, LLM)

9.22
 avabate -Pa
a roket
Takeatry'- dhcale. merby ßo
Re. i
ce estos to
rclosh
Cloe to issue

soforse
(otordad
eRaad sos gruestos
Coers "Pot potrone
- Hstosy
Ostuch ai,lines
" financal geul4
ape cbe ohda Srterdo)

Crocwlag aResenach Papos

Soiepaad by oresseak anast
Oc
Pooteue Basai
bico e inssue
hi giues vt roakeia tool
info
>inony cánvestss tabe desicron
to abaut- conplete
co bst er n RP
Caves oPselrraoteemg
34ndicato merabrs aalte
issue
aprtal stouctusu 4e roasuket c lose to th
fronenal dade Cacftlbala,) oy rmeting the onuestor to
Understend the Aspone Be
-Cthor stoteges could be
conblerarded hte,

legal mata
9 Shubhamm Sukhlecha (CA, CS, LLM)
 Agency Incase of FCCBs, the company has to enter into an agency agreeme
agreement, these
Agreement certain persons known as conversion agents. In terms of this
to the holders
agents are required to make the principal and interest payments liaise with the
of FCCBs from the funds provided by the company. They will also
option to be exercised by the
Ompany at the time of conversion/redemption
Investor at maturity. Covenant (known as Trust Deed)
Trust Deed n respect of FCCBs the companv enters
into a
guaranteeing payment of principal and
witn the Trustee for the holders of FCCBS,
comply withthe obligations in respect of
nterest amount on such FCCBS and to
such FCCBs.

Other Related Concepts

prospective investors can access
Offering Offering Circular is a mirror through which the
order to form their investment
Circular vital information regarding the company in
strategies.
information regarding
lt is to be prepared very carefullygiving true and complete research and
the financialstrength of the company, its past performance,
ability
business promotion activities, track record of promoters and the company,
to trade the securities on Euro capital market. The Offering Circular should be
very comprehensive to take care of overall interests of the prospective investor.
Research Research analysts team of lead manager/co-lead manager prepares research
Papers papers on the company before the issue. These papers are very important
marketing tools as the international investors normally depend a lot on the
information provided bythe research analysts for making investment decisions.
Pre 1. Pre-marketing exercise is a tool through which the syndicate members
marketing evaluate the prospects of the issue. This is normally done closer to the issue.
The research analysts along with the sales force of the syndicate members
meet the prospective investors during pre-maketing
the syndicate members to understarid the market androádshows. This enables
the probable response
from the prospective investors.
2. The pre-marketing exércise helps.in
assessing the depth of investors' interest
in the proposed issue, their view about the valuation of the share and the
geographical locations of the investors who are interested in the issue. The
response received during pre-marketing provides vital
important decisions relating to timing, pricing and sizeinformation for taking
would also help the syndicate of the
the issue. members in evolving atrategies for issue. This
Timing, After pre-marketing exercise, the marketing
pricing and of theissue are taken. The important decisions of timing, pricing and size
size of the proper time of launching the issue is
Issue fundamentals of the
of the shares are company and the industry are strong and the
when the
also not clash withperforming well at Indian
some other major issuesStock Exchanges. market price
The timing should
companies. The decision regarding the size of the Indian as well as other
pricing i.e. larger the size, the of issue is
inversely linked
country
Roadshows Roadshows represent meetingscomparatively lower-the price with the
orvice-versa.
ofissuersanalystsand potential investors)
Shubhamm Sukhlecha (CA, CS, LLM)
 deadad
doouded
to be agy
minimum
to
fung Ceula kso. Booh.
be. bept ein mnd
Closng he ci ond allahmont
eeith
all the tmaltin,shoe
ond ubngttd
cued to, dooro
Bs.
Ceitftes
to Costo dian.

FccB

Odomemnaked cin F
Con FC
payde eut, sh.
Rnapd t intcorwrtule issurg
con
prosy
ureecso.

LLM)
Sukhlecha (CA, CS,
Shubhamm
 their willingness to buy
Book During road shows, the investors gNe indication of the
willingness is booked as orders asbybook
building pertcular quantity at particular termns, Their This process is
known
and pricing marketing force of lead managert and co lead manger.
of the Issue building.
mix of any product or service. This isEuro
Price is a very critical element in the market bonds and speciallyin
case of
more so in case of financial assets ike stocks and utute earnings
strong correlation to the near
a
issues. The market price abroad hasindustry economic state of the
and the basic behaviour
potential, fundamentäls governing prevalent practices, investor sentiment,
like
country. Several other actors country, are also
market process etc., credit
domestic rating of
towards issues of a partlculet issue price, Other factors such as the
Considered in determinaion of ávailability of an exit route are important.documentation
the country, inerest rate end the
conirming completion of all legal to the
losing of Cosing is essentialy an activty
company issues the share certificate issue is
on which the domestic custodian. Once
the
the Issue and formalities based
deposits the same with the finalised. Thereafter, the
depository and allotment is
and
formalities are over,the Bank and deposits the
Allotment Closed and all legal in favour of the Overseas Depository
shares
company issuesdomestic'custodian custody. The particulars of the Overseas
for Register of Members of the
same with the to be entered into
the
Depository Bank are required with
company. the issuing company maintains contact
investors expect that informed by the company
Ivestor The intemational always like to be
them after the issue. These investors the company, the factors
Relation developments, the performance of
Programme about the latest company's plans. It is, therefore, essential for the
affecting performance and the investor relation programme. Good investor
up an
GDR issuing company tò set towards the company and it would help the company
in
relation ensures goodwill
future fund raising efforts
Bonds
Foreign Currency Convertible
(FCCBS) are.optionally convertible bonds issued in a
Foreign Currency Convertible Bonds equity
Rupees. A convertible bond is a mix between a debt and
currency other than Indian çoupon and principal payments, but these
instruments. It acts like a bond by making regular
bondholders the option to convert the bond into shares at the expiry the
bonds also give the
term of the Bond.
and an option for conversion into a fixed
The FCCBs are unsecured, carry a fixed rate of interest redemption price (if conversion
number of equityshares of the issuer company. Interest anddenominated in any freely
option is not exercised) is payable in dollars. FCCBs shall be issue proceeds need
convertible Foreign Currency. However, it mu_t be kept in mind that FCCB
toconform to ECB end use requirements.
Foreign investors also prefer FCCBs because of the dollar denominated servicing, the
conversionoption and, the arbitrage opportunities presented by conversion of the FCCBs into
equity at a discount on prevailing Indian market price. In addition, 25% of the FCCB proceeds
can be usedfor general corporate restructuring.
The major drawbacks of FCCBs are that the issuing company cannot plan its capitalstructure as
it is not assuredof conversion of FCCBs. Moreover, the projections for cash outflow at the time
of maturity cannot be made.
9 26 Shuhhamm Sukhlecha (CA, CS, LLM)
 FçCB is particularly lower
Benefits to the Being Hybrid instrument, the coupon rate onthe debt financing cost.
Issuer Company by reducing
tnan pure debt instrument thereon'conversion.
accretive It saves risks of lmmedlate
CBs are book value
shares. Unlike debt, FCCB does not
equity dilution as in the case of public
oale etc.
like securities, coverlonger
require any rating nor anycovenant debt takes a period to
while pure
It can be raised within a month time of
usually payable at the lower for
raise. Because the coupon is low and also
the instrument, the cost of withholding tax is
redeeming Instruments.
FCCBS compared with other ECB
and debt. investment in equity, and the
Benefits to the It has advantageof both equity
much of the upside of
Investor It gives the investor
debt portion protects the downside. fixed coupon rate payments.
the form of means of
Assured return on bond in price appreciation inthe stock byprice of a
advabtage of activated when
Ability to take the bonds, which are
warrants attached tò
stock reachès a certain point. guaranteed at maturity. to lower
to maturity (TM) is instruments due
Significant Yield compared to'pure debt
Lower taxliability as
coupon rate.'
DEPOSITORY RECEIPT MECHANISM)
SHARES (THROUGH
Re
FCCB AND ORDINARY
SCHEME, 1993
guidelines in August 2005. In addition to the
was brought under the ECB
The issuance of FCCBs
requirements of:
having the maturity of the
FCCB not less than 5 years, robteg
yers,
option, if any, shall not be exercisable prior to 5
ii. the call &put any warrants attached,
iii. issuance of FCCBs only withoutexceeding 4% of issue size and in case of private
not
iv. the issue related expenses issue size, etc.
placement, shall not exceed 2% of the
as acts as a custodian for the ordinary
banking company whieh
Domestic It means a Convertible Bonds of an Indian Company which
Custodian Bank shares or Foreign Currency Depository Receipts or certificates.
are issued by it against Global
means bonds issued in accordance with thisscheme and subscribed by a
Foreign It ordinary shares of the
non-resident in foreign currency and convertible into part, on the basis of
Currency whole, or in
Convertible issuing company in any manner, either in
to debt instruments.
any equity related warrants attached
Bonds issue Foreign Currency Convertible
Assuing It means an Indian Company permitted to Global Depository
Bonds or ordinary shares of that company against
Company Receipts.
to issue Global
Overseas It means a bank authorised by the issuing company Bonds or.
Depository Depository Receipts against issue of Foreign Cùrrency Convertible
Bank ordinary shares of the issuing company.

9. 28 Shubhamm Sukhlecha (CA, CS, LLM)

FctB

Ioted4 ybla to

Sht am Suthle ha (CA

 Foreign Currency Exchangeable Bonds Scheme, 2008
Issuer Company The Issuing Company shall be part of the promoter group of the Offered Company

LSane
offered
ATA and shall hold the equityshare/s being offered at thetimeengaged
of issuance
or
in a sector
The Offered Company shall bealisted Company, which is issue or avall of
Company eligible to receive Foreign Direct Investment (FDI) and eligible to Borrowings
trd o Commercial
Foreign Currency Convertible Bond (FCCB) or External
OlelgteC (ECB). securities
Entities not C fromthe Indian
An Indian to raise funds
eligible to issue companyA which is not eligible restrained from
accessing the
market, including a ompany which has been toissue FCEB.
eligible
FCEB securities market by the SEBI shall not be adhering to the sectoral caps at the
Eligible Entities complying with th FDIpolicy and Foreign
approvalI of the FDI policy,
subscriber time of issue of FCEB caD subscribto FCEB. Prior |under the
Investment Promotion Board (FIPB), herever
required
will not be
eligible
should be obtáined.
securities by the SEBI
Prohibition by Entities prohibited to buy, sell or deal in
SEBI -tosubscribe to FCEB.
companies.
End use of FCEB Issuing Company
FCEB may be invested in promoter group
direct investment
Proceeds ATheproceeds of the be
of
invested overseas by way subject to the existing
FCEB can
HThe proceeds.of Wholly Owned
Subsidiaries
including in Joint Ventures or
Jnvestment in Joint Ventures or Wholly
Owned
guidelines on Indian Direct
Subsidiaries abroad.

Aromoter Companies proceeds may utilise

receiving 0nvestments put of the FCEB
Promoter Companies ECB policy.
accordance with end-uses prescribed under the
the amount in expenses incurred in foreign
on FCEB and the issue Bankunder
All-in-cost The rate of interest payable cost ceiling a_ specified by Reserve
currency shall be within the all-in
the ECB policy. FCÉB.
approval of the RBI shall be required for issuance of
Operational Prior
may be denominated in any freely convertible foreign currency.
The FCEB
procedure
the exchange price of the offered listed equity
Pricing of FCEB At the time of issuance of FCEB
of the following two:
shares shall not be less than the higher shares of
qt wh
The average of the weekly high and low of the closing prices of the
1.
on the stock exchange during the six ghonths
the offered company quoted and
preceding the relevant date;
of the closing prices of the shares of
2. The average of the weekly high and low exchange during the two week
-theoffered company quoted on a stock
preceding the relevant date
option can be
Maturity Minimum matùrity of FCEB shall be five years. The exchange
exchange option,
exercised at any time before redemption. While exercising the
(Net)
the holder of the FCEB shall take delivery of the offered shares. Cash
settlement of FCEB shall not be permissible.
ngt as elea
Shubhamm Sukhlecha (CA CS LLM)