INDIA has developed as a brand when it comes to Securities Market, even think of technologies, regulator, etc…which is time & again proved now when a body corporate from abroad has decided to raise money from India by submitting its foreign securities and is in the process of getting itself registered with Indian Stock Exchanges (BSE/NSE) with less compliance requirements.
Confused!!! This happened on 30th March 2010, when Standard Chartered PLC has filed its draft offer document with SEBI for issue of IDR’s to raise money from India. India is in the process of becoming a destination beyond merely attracting Foreign Direct Investments and has reached the level of infusing capital into Companies from United Kingdom!!!
Standard Chartered PLC is a Company incorporated in England and Wales and listed in London Stock Exchange and Hong Kong Stock Exchange, and now soon will be listed with Bombay and National Stock Exchange with its IDR’s.
The Draft Offer Document for IDR which is published in SEBI website is a master piece of Legal & Capital Market laws, Financial & Accounting Standards, of India, UK and China with 804 pages of information. On reading this document, one can understand,
- Company Laws of India, UK & China
- Securities laws, listing, delisting & takeover code provisions in the countries
- Comparison of Corporate Governance norms
- Foreign Exchange laws (FEMA) and the approvals required for the issue
- Financials as presented in these Countries
- IFRS and Indian Accounting Standards
- Taxation provisions under these countries
So, this offer document is a one-stop referencer of various laws in the countries.
IDR ISSUE DETAILS
ISSUE OF 220,000,000 INDIAN DEPOSITORY RECEIPTS (‘‘IDRs’’) AT AN OFFERING PRICE OF Rs. [*] PER IDR WITH EVERY [*] IDRS* REPRESENTING ONE SHARE OF STANDARD CHARTERED PLC, OF US$0.50 NOMINAL VALUE.
RISK IN RELATION TO THE FIRST ISSUE
This being the first public issue of IDRs representing the underlying Shares of the Company, there has been no formal market for the IDRs. No assurance can be given regarding active and/or sustained trading in the IDRs of the Company or regarding the price at which the IDRs will be traded after listing.
Further, this post deals with Foreign Exchange provisions and FAQ on IDR’s from the said offer document.
FOREIGN INVESTMENT, EXCHANGE CONTROLS AND OTHER INDIAN LAWS
UK Exchange Control Regulations: There are currently no UK laws which affect the import or export of capital, or the remittance of dividends, interest or other payments. There are no restrictions on the transfer of UK securities.
Hong Kong Foreign Investment and Exchange Control: There are currently no Hong Kong laws which restrict foreign investment (other than in relation to investments in certain telecommunications and broadcasting service providers) or impose foreign exchange control in Hong Kong. It is specified in the Basic Law of Hong Kong that no foreign exchange control policies shall be adopted.
Indian Exchange Control Regulations: Pursuant to the terms of the RBI Circular, prior approval of the sectoral regulator(s) is required for raising funds through issuance of IDRs by financial/banking companies having a presence in India, either through a branch or subsidiary. The RBI approved the Issue on 7 October 2009.
Pursuant to a letter dated 14 January 2010, terms of the approval letter dated 7 October 2009 were partially modified and clarified by the RBI. Further, the RBI on 22 March 2010 permitted the issue of IDRs not exceeding 5% of the total Shares of the Company. This approval is valid for a period of three months. Remittance of proceeds from the Issue Pursuant to the terms of the RBI Circular issued under FEMA, the proceeds of the issue of IDRs are required to be repatriated outside India. Investment in IDRs Pursuant to the terms of the RBI Circular, FIIs including SEBI approved sub-accounts of the FIIs, registered with SEBI and NRIs may invest, purchase, hold and transfer IDRs, subject to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. Further, NRIs are allowed to invest in the IDRs out of funds held in their NRE/ FCNR(B) account, maintained with an authorised dealer/authorised bank. No single individual or single entity or group of entities in India, other than QIBs, shall hold, directly or indirectly, IDRs exceeding 5% of the Issue. No single QIB or a group of QIBs shall hold IDRs exceeding 15% of the Issue. In accordance with the regulations of the RBI, no bank in India shall: (i) grant a loan to any investor for the purpose of subscribing for any IDRs; or (ii) grant a loan to any person which is secured against any IDRs. Ability to withdraw Shares from the IDR Facility and to deposit further shares into the IDR Facility Pursuant to the terms of the RBI Circular, IDRs are not redeemable into underlying equity shares before the expiry of a one-year period from the date of issue of the IDRs. The SEBI Regulations state that automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying Shares would be permitted only after the expiry of the one year period from the date of issue of the IDRs and subsequent to obtaining RBI approval on a case-by-case basis. Further, two-way fungibility (the ability to purchase existing Shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme) is not currently permitted. Additionally, in terms of the RBI Circular, at the time of redemption/conversion of IDRs into
underlying shares, the Indian holders (persons resident in India) of IDRs are required to comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004.
The ability of Indian residents to hold underlying Shares is limited. Pursuant to the terms of the RBI Circular, resident individuals are allowed to hold the underlying Shares only for the purpose of sale.
The IDR Holders are required to sell the underlying Shares within a period of 30 days from the date of conversion of the IDRs into underlying Shares. The FEMA provisions are not applicable to the holding of the underlying Shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs and NRIs. Under the existing guidelines, an individual resident in India is permitted to remit only up to US$200,000 per financial year to undertake any capital account/current account transactions including investment in foreign securities. Furthermore, a company incorporated in India can invest only up to 50% of its net worth by way of overseas portfolio investments per financial year.
Possible restrictions on the ability of the Company to distribute further shares in India Under the Indian Companies Act, a company incorporated outside India cannot issue, circulate or distribute any offer of securities to more than 50 persons (other than professional investors) resident in India without registering a prospectus with the RoC. Such a prospectus is required to contain the information specified in the Indian Companies Act and the SEBI Regulations. The exact law applicable to and the process to be followed for the registration of such a prospectus is not clear at present.
Eligibility Criteria:
THE IDR FACILITY, PRINCIPAL PARTICIPANTS AND KEY DOCUMENTATION
(Frequently Asked Questions – FAQs on IDR)
What are IDRs?
IDRs are depository receipts denominated in Indian Rupees issued by the Depository. Every [*] IDRs will represent an ownership interest in one Share.* Shares underlying the IDRs will be deposited with the Custodian who will hold the Shares on behalf of the Depository in accordance with the terms of the Custody Agreement (for the purposes of this section, referred to as the ‘‘Deposited Shares’’). Each IDR will also represent any securities, cash or other property attributable to the Deposited Shares that has been deposited with the Custodian or the Depository but has not been directly distributed to the IDR Holders (for the purposes of this section, together with the Deposited Shares, referred to as the ‘‘Deposited Property’’).
Pursuant to the Issue, [*] IDRs representing [*] Deposited Shares will initially be issued by the Depository. Every [*] IDRs represent one Share.*
Who are the principal participants in the IDR Facility and what are their roles?
The principal participants in the IDR Facility are the Company, the Custodian, the Depository and the Registrar. Under the IDR Facility, the Company deposits the Deposited Shares with the Custodian who holds the Deposited Shares on behalf of the Depository. The Company owes certain obligations to the Depository (and, under a Deed Poll executed by the Company to the IDR Holders) in respect of the Deposited Property under the Deposit Agreement. These obligations are described further throughout
this summary. Kindly note, a deed poll is a deed made and executed by a single party.
The Depository is appointed by the Company pursuant to the Deposit Agreement. The Depository will issue the IDRs representing the Deposited Shares to IDR Holders and will hold the Deposited Property (and all rights, benefits and obligations attaching thereto) as bare trustee under English law
for the IDR Holders. The Depository owes certain obligations to IDR Holders in respect of the Deposited Property under the terms and conditions of the IDRs. These obligations are described further throughout this summary.
The Custodian is appointed by the Depository pursuant to the Custody Agreement. The Custodian will hold the Deposited Property on behalf of the Depository and will, upon receipt of instructions from the Depository, take certain actions with respect to the Deposited Property to enable IDR Holders to obtain the benefit of such Deposited Property. The Registrar is appointed by the Company and the Depository under the Registrar Agreement and the Transfer Agent Agreement to provide certain services to the Depository in relation to the IDR Facility. In the event that the appointment of any of the Depository, the Custodian or the Registrar is terminated or any of those entities resigns from office, no such resignation or termination of appointment will be effective until a successor entity has been appointed to act in the relevant capacity. IDR Holders will be notified of any such changes.
Can IDR Holders deposit further Shares in the IDR Facility?
IDR Holders cannot deposit further Shares in the IDR Facility. The Company may deposit further Shares in the IDR Facility in limited circumstances. For example, additional Shares may be deposited in the IDR Facility in the event that
(i) such Shares are issued as a dividend or free distribution on Deposited Shares;
(ii) such Shares are acquired by IDR Holders from the Company during a rights issue; or
(iii) such Shares are issued by the Company to the IDR Holders in respect of the Deposited Shares as a result of any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or upon any reorganisation, merger or consolidation of the Company. However, such deposits of further shares would be subject to certain limitations as further described herein.
Other shareholders of the Company cannot deposit shares in the IDR Facility.
Can IDR Holders withdraw the Deposited Shares represented by the IDRs from the IDR Facility?
IDR Holders may only withdraw the Deposited Shares with the prior approval of the RBI. In addition, under Indian law, there is an absolute prohibition on the withdrawal of Deposited Shares for a period of one year following the date of the issue of the IDRs. Each IDR Holder will have to individually approach the RBI for such approval at their own expense. At present, there is no specified format for making such an application. An IDR Holder will have to make a general application pursuant to the provisions of FEMA. There can be no assurance that such approval will be granted by the RBI in a timely manner or at all. Moreover, IDR Holders will not be able to withdraw fractions of Shares. In addition, IDR Holders who are able to cancel their IDRs and become shareholders of the Company may still be subject to certain limitations not applicable to other shareholders.
If an IDR Holder withdraws Deposited Shares having obtained the required approvals, the IDR Holder will be required to provide a Withdrawal Order in the form annexed to the Deposit Agreement (a copy of which can be obtained from the Registrar) to the Depository, pay a fee of US$0.05 or less (exchanged into INR at prevailing exchange rates) per Deposited Share evidenced by those IDRs to the Depository and have such Shares registered in the IDR Holder’s name or that of a designated nominee. A Withdrawal Order cannot be given in respect of a fraction of a Deposited Share. Deposited Shares, once withdrawn, may be traded on the London Stock Exchange (or, upon completion of certain procedures by an IDR Holder, on the Hong Kong Stock Exchange). Following withdrawal of the Deposited Shares, IDR Holders would also have to pay certain customary fees and charges in connection with the trading of such withdrawn Shares on these stock exchanges, which would include brokerage commissions and applicable stamp duties. Other persons resident in India including resident individuals are allowed to hold the Deposited Shares only for the purpose of sale within a period of 30 days from the date of conversion of IDRs.
OWNERSHIP AND TRANSFER OF IDRS
Who can hold IDRs?
Pursuant to the current SEBI Regulations and the RBI Circular, IDRs may be held, purchased or transferred by Retail Individual Bidders, non-institutional bidders and qualified institutional bidders including persons resident in India, NRIs and FIIs, including SEBI approved sub-accounts of FIIs registered with SEBI, or to, or for the account or benefit of, such persons, in each case subject to applicable laws. Insurance companies are not permitted to invest in or hold IDRs. Commercial banks may invest or hold IDRs subject to compliance with applicable prudential limits specified by the RBI from time to time.
How will IDR Holders acquire and hold the IDRs?
The IDRs will initially be represented by Dematerialised IDRs evidenced by the Register maintained or procured to be maintained by the Depository showing the latest available registered holding position received from NSDL and CDSL. NSDL and CDSL will credit the dematerialised account of an IDR Holder with the relevant number of IDRs held by that IDR Holder.
Can IDR Holders ever hold IDRs in physical form?
IDR Holders may, at their option, elect to hold the IDRs in physical form represented by an IDR Certificate, rather than in electronic form represented by Dematerialised IDRs. IDR Holders will be required to pay a sum per IDR Certificate which is determined by the Depository to be a reasonable charge to reflect the work, costs and expenses involved, if such an election is made. In addition, IDR Holders will be entitled to receive IDR Certificates at the expense of the Company upon the occurrence of certain events relating to NSDL and CDSL ceasing to operate or in the event that the
Depository determines that by holding IDR Certificates certain deductions or withholdings from payments to IDR Holders would be avoided.
Can IDRs be transferred?
IDRs will be listed on the Stock Exchanges and may be bought and sold through the facilities of the Stock Exchanges in accordance with the procedures, rules and regulations and other applicable laws relating to the transfer of listed securities in India.
FEES AND OTHER PAYMENTS BY IDR HOLDERS
Are there any fees and charges payable by IDR Holders to the Depository with respect to the IDRs?
IDR Holders are required to pay a fixed fee of US$0.05 or less (exchanged into INR at prevailing exchange rates) per Share evidenced by [*] IDRs upon a withdrawal of the Shares from the IDR Facility and on the issue of any future IDRs (other than the Issue). For services performed by the Depository, any of the Depository’s agents, including the Custodian, or the agents of the Depository’s agents in connection with the IDRs, in relation to the servicing of Deposited Shares or other Deposited Property, IDR Holders will be charged a fee of US$0.016 or less per Share evidenced by [*] IDRs (and a proportionate amount where an IDR Holder holds less than [*] IDRs representing less than a Share), and that amount will be deducted by the Depository from each cash dividend or other cash distribution received by the Depository on or in respect of the underlying Shares or other Deposited Property. The service fee per Share evidenced by the IDRs will be calculated on a sliding scale depending on the amount of the dividend per Share as illustrated by the following table:
In respect of any issue of rights or distribution of Shares (whether or not evidenced by IDRs) or other securities or other property (other than cash) upon exercise of any rights, any free distribution, stock dividend or other distribution, IDR Holders will be required to pay a sum per IDR which is determined by the Depository to be a reasonable charge to reflect the costs and expenses incurred by or on behalf of the Company or the Depository or any of the Depository’s agents, including the Custodian, or the agents of the Depository’s agents, in connection with such issue of rights or distribution of Shares or other securities or other property.
Are there any other fees and charges that are likely to be payable by IDR Holders?
Certain additional fees may become payable if particular services are requested by IDR Holders. For example, if an IDR Holder requests the issue of an IDR Certificate in definitive registered form including in replacement for a mutilated, defaced, lost, stolen or destroyed IDR Certificate), subject
to indemnification where appropriate, there would be a charge per IDR Certificate that is determined by the Depository to be a reasonable charge to reflect the work, costs (including printing costs) and expenses involved. In addition, there would be an administrative charge for the provision of copies of certain documents, such as the Deposit Agreement, upon request by an IDR Holder. The Depository is also entitled to charge IDR Holders for all expenses (including currency conversion expenses), transfer and registration fees, taxes, duties and charges payable by the Depository, the Registrar or the Custodian, or any of their agents, in connection with its services. IDR Holders will also have to pay the Depository certain fees together with any costs, charges, taxes and expenses incurred by the Depository if and when it assists IDR Holders in participating in a tender offer, open market buy-back or takeover offer in respect of the Shares including in a tender of Shares to the Company following a de-listing of the Shares from the London Stock Exchange.
Who pays taxes arising in relation to the IDRs?
The Company will pay all taxes and stamp duties in the United Kingdom and India associated with the initial issuance of the Deposited Shares to the Custodian in accordance with the terms of the IDR Facility. IDR Holders will be responsible for all other taxes or other governmental charges payable on the IDRs or on the Deposited Shares. The Depository is not liable for any taxes, duties in the United Kingdom and India, charges, costs or expenses which may become payable in respect of the Deposited Shares or other Deposited Property or the IDRs. Such part thereof as is proportionate or referable to an IDR shall be payable by the IDR Holder to the Depository at any time on request or may be deducted from any amount due or becoming due on such IDR in respect of any dividend or other distribution. A failure to comply with such request may result in the sale of the Deposited Shares represented by the IDRs of the defaulting IDR Holder. Payments to IDR Holders of dividends or other distributions in respect of the Deposited Shares shall be subject to deduction of applicable withholding taxes.
RIGHTS AND ENTITLEMENTS OF IDR HOLDERS
Are IDR Holders entitled to the same rights and entitlements as holders of Shares?
The Company has agreed that for all corporate actions (including voting, rights issues, the payment of dividends and other distributions), it will treat IDR Holders on an equitable basis vis-a` -vis other holders of Shares in the home country of the Company. Additionally, where the Shares are also listed
on other exchanges in addition to its home country, the Company will ensure that IDR Holders are also treated on an equitable basis vis-a` -vis the holders of such Shares in other jurisdictions where the Shares are listed. In circumstances where certain corporate actions, which are available to the holders 45 of Shares in the home country of the Company and other jurisdictions where the Shares are listed, are not permitted by Indian laws to be offered to IDR Holders, the Company has agreed to provide equitable treatment to the IDR Holders for such corporate actions as allowed by applicable law and to the extent possible.
The practical effect of the Company’s obligation in this regard is that, subject to certain exceptions, whenever the Company and/or the Depository is unable to make distributions available to the IDR Holders, the Depository will try and sell the Deposited Property that is the subject of the distribution on behalf of the IDR Holders and distribute the net proceeds thereof as a cash distribution to the IDR Holders. However, there is no assurance as to the value, if any, that the Depository would receive upon the sale of such Deposited Property. Subject to this general principle, the rights of IDR Holders will be affected by certain operational practices of and the requirement to pay certain fees to the Depository, as a result of participating in the IDR Facility, which would not be applicable to other holders of Shares. The principal practical limitation is the additional procedural step involved in communicating with IDR Holders which can limit the ability of IDR Holders to exercise their rights and receive their entitlements in respect of various corporate actions relating to the Company under the Conditions. Holders of the Shares of the Company will receive notice directly from the Company and will be able to submit their instructions in respect of any corporate action directly to the Company or, if applicable, a third party. IDR Holders, in contrast, will receive the notice in accordance with the Deposit Agreement. Pursuant to the Deposit Agreement the Company will provide the notice to the Depository. The Depository shall as soon as reasonably practicable forward to the IDR Holders notice of such event and, in any event, no later than ten days before the date of the relevant meeting and/or the date of acceptance of instructions in relation to the relevant corporate action. In order to exercise their right to participate in a corporate action relating to the Company, IDR Holders must provide their instruction in respect of the corporate event to the Depository. Because of this additional procedural step, the process for the submission of instructions may take longer for IDR
Holders than for holders of the Shares. Further, IDR Holders may not be able to receive the documentation relating to the corporate event in time to enable them to return their instructions to the Depository in a timely manner. IDRs for which the Depository does not receive timely instructions will not be eligible to participate in the corporate event.
Will IDR Holders receive cash dividends and other cash distributions on the Deposited Shares represented by the IDRs?
An IDR Holder will be entitled to dividends and other cash distributions in respect of the Deposited Shares represented by their IDRs if the Company declares such a cash dividend or cash distribution to be payable to holders of Shares (and the Depository receives from the Company such cash dividend or other cash distribution) and the IDR Holder is registered as an IDR Holder on the relevant record date set by the Depository.
Payments of cash dividends and other cash amounts in respect of IDRs represented by Dematerialised IDRs will be made by the Depository through the Registrar. Any dividend or other sum payable in cash in respect of the IDRs to IDR Holders, will be paid by cheque, demand draft or pay order sent by post to the IDR Holder at his registered address recorded in the Register maintained by the Registrar. Prior to distribution, the Depository will make reasonable efforts to convert the amount received into Indian Rupees. If it is impractical to effect such conversion, the Depository may distribute the dividend in the relevant foreign currency to the extent permitted under applicable law or hold such other currency for the benefit of IDR Holders entitled thereto. The Depository is under no obligation to invest any currency that it cannot convert and it will not be liable for any interest. If exchange rates fluctuate during a time when the Depository cannot convert such cash distribution, IDR Holders may lose some or all of the value of the distributions.
Will IDR Holders receive any dividends or other distributions on the Deposited Shares represented by the IDRs that are not in the form of cash?
IDR Holders should be aware that there are certain limitations on the ability of the Company to make available to IDR Holders through the Depository any dividends or other distributions on the Deposited Shares that are not in the form of cash. This is because of provisions of English law and the potential application of certain provisions of Indian law. See the risk factor titled ‘‘Certain corporate actions of the Company may entitle existing shareholders of the Company to receive further Shares from the Company. However, the ability of IDR Holders to receive such further shares from the
Company (either in the form of Shares or IDRs representing the Shares) may be restricted’’ in the section titled ‘‘Risk Factors’’ on page 69 of this Draft Red Herring Prospectus for further information.
This would be particularly applicable if the Company were to undertake a rights issue or a bonus issue of shares or offer holders of Shares the right to receive Shares instead of all or part of a cash dividend (a scrip dividend alternative) and the IDR Holder were to accept this option. In relation to a scrip dividend alternative, the Company would normally send a circular to holders of Shares giving details of the terms of the relevant election and how an election can be made, together with a form of election stating the number of new Shares that a holder is entitled to receive instead of the cash dividend. If the Company determines that it is permissible and practical for IDR Holders to participate in any scrip dividend alternative, IDR Holders would receive the relevant notice of election and be entitled to submit their election through the Depository Other distributions If the Depository receives any distribution in securities (other than Shares) or in other property (other than cash), the Depository will distribute such securities or other property to the IDR Holders entitled thereto in a manner deemed equitable and practicable by the Depository subject to applicable laws (which may involve the sale of such securities or other property and the distribution of the sale proceeds as a cash distribution to the IDR Holders entitled thereto).
What happens in the event that the Company undertakes a rights issue?
IDR Holders should be aware that there are certain limitations on the ability of the Company to make a rights issue available to IDR Holders through the Depository because of provisions of English law and the potential application of certain provisions of Indian law.
In addition, making a rights issue available to IDR Holders could have timetable implications that cannot be satisfactorily resolved and which may make it difficult for the Company to undertake a rights issue simultaneously in the UK and in India. Whilst the time period between the date of announcement and the date of allotment is 10 Business Days in a rights issue in the UK, the existing guidelines on rights issues in India require that the rights issue be kept open for a substantially longer period. In light of the existing differences in the timeline followed for a rights issue in the UK and in
India, it would be difficult for the Company to undertake the rights issue simultaneously in the UK and in India. A rights issue to the same class of shareholder may not be able to operate on two different time lines as this would give rise to trading and fungibility issues as well as questions in the home market on equality of treatment of shareholders, where shareholders in certain jurisdictions are given a longer time frame within which to accept.
Given the limitations above, it is likely that, subject to certain conditions, the Depository will exercise the option available under the Conditions to either sell such rights and distribute the net proceeds of the IDR Holders entitled thereto or, in the event that is not lawful or practicable, for the Depository to take such action, to permit the rights to lapse and notify the IDR Holders of such decision.
However, the Depository may, in substitution of this option, if it is lawful or practicable to do so, either: (i) take such steps as are necessary to enable IDR Holders to subscribe for the Shares represented by such rights, and issue additional IDRs to the IDR Holders who subscribe for such Shares; (ii) distribute the rights themselves to the IDR Holders; or (iii) arrange for IDR Holders to subscribe for any additional rights which are available due to lack of take-up by other holders of Shares. In the event that it is not lawful or practicable for the Depository to take any of these specified actions or if there are rights to which the IDR Holders are not entitled because of fractional entitlements to shares, the Depository shall permit the rights or, as applicable, the relevant rights to lapse and will notify the IDR Holders of such decision.
If the Depository determines to take such steps as are necessary to implement the option set out in
(i) above, IDR Holders who elect to take up such rights will be obliged to pay an amount to the Depository representing (in Indian Rupees) an amount equal to the subscription price for such rights plus any additional amount in respect of such subscription price to ensure that the Depository (acting in good faith) will, after conversion of such Indian Rupees into the currency by which subscriptions may be made, have sufficient funds to satisfy the subscription price taking account of any possible fluctuations in rates of foreign currency. Following conversion of this amount by the Depository to
the relevant foreign currency and payment of the subscription price in the relevant foreign currency, the Depository will return any surplus subscription amounts (after converting such amounts into Indian Rupees) to IDR Holders at the time of issue of the additional IDRs representing the new
Deposited Shares or as a cash distribution.
Will IDR Holders be entitled to vote the Deposited Shares represented by the IDRs?
IDR Holders have voting rights with respect to the Deposited Shares and will generally be entitled to vote on resolutions of the Company. The Articles of the Company provide that a shareholder is required to hold four Shares in order to register one vote on a poll. Accordingly the IDR Holders are required to hold IDRs representing at least four Shares so as to register one vote on a poll. For further information on the voting rights attached to the Shares please see the section titled ‘‘Main Provisions of the Articles of Association’’ on page 457 of this Draft Red Herring Prospectus. If IDR Holders wish to attend shareholder meetings they will be able to instruct the Depository to appoint them as proxy in respect of the Shares underlying the IDRs. IDR Holders are entitled to instruct the Depository to exercise voting rights in respect of the Shares represented by their IDRs subject to the right of the Depository to request certain legal opinions from the Company’s legal counsel in advance of any such exercise in certain limited circumstances.
The Company will provide notice of any meetings where votes will be cast to the Depository. Upon receiving such notice, the Depository will send to IDR Holders a notice (with a requirement under the Deposit Agreement to provide such notice no less than 10 days before the date of the relevant meeting) stating: (i) such information as is contained in the notice provided by the Company to the Depository; (ii) the date by which voting instructions must be received from IDR Holders; (iii) the manner in which such instructions may be given to the Depository; and (iv) how the IDR Holders may instruct the Depository in respect of the Shares represented by that IDR Holders’ IDRs.
Following receipt of such instructions from IDR Holders, the Depository will procure that the Custodian shall appoint the relevant persons as proxies in respect of the Deposited Shares as specified in the instruction provided by IDR Holders to the Depository. The Depository will not vote or cause to be voted any Deposited. Shares unless specifically instructed by an IDR Holder. If an IDR Holder does not so instruct the Depository, the votes attaching to the Deposited Shares will be counted as an abstention.
There are practical limitations upon the IDR Holders’ ability to exercise their voting rights due to the additional procedural steps involved in communicating with IDR Holders. Holders of the Shares will receive notice directly from the Company and will be able to exercise their voting rights by either attending the meeting in person or voting by power of attorney. IDR Holders, in contrast, will not receive notice directly from the Company. Rather, in accordance with the Deposit Agreement, the Company will provide the notice to the Depository. The Depository has undertaken, in turn, as soon as practicable thereafter, to forward to the IDR Holders such notices, the voting instructions, if and as received by the Depository from the Company, and a statement as to the manner in which instructions may be given by IDR Holders. To exercise their voting rights, IDR Holders must then
instruct the Depository how to vote the Shares evidenced by the IDRs they hold or instruct the Depository to appoint a proxy. Because of this additional procedural step involving the Depository, the process for the exercise of voting rights may take longer for IDR Holders than for holders of the Shares. IDR Holders may not be able to receive voting materials in time to enable them to return voting instructions to the Depository in a timely manner, and IDRs for which the Depository does not receive timely voting instructions will not be voted.
What happens in the event of a capital reorganisation?
In the event of any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or any other part of the Deposited Property or upon any reduction of capital or reorganisation, merger or consolidation of the Company, the Depository will give notice of such event to IDR Holders and, in its discretion, may distribute any Shares, cash or other property received from the Company pursuant to such event to the IDR Holders as it would distribute any regular distribution under the Conditions subject, in each case, to the limitations in respect of certain distributions that are not in the form of cash described elsewhere in this section.
Will IDR Holders be able to participate in tender offers, open-market buy-backs or takeover offers relating to the Shares?
In the event that an open-market buy-back, tender offer or takeover offer is made with respect to the Shares, the Depository and the Company will be obliged to take certain reasonable steps to enable IDR Holders to participate in such events in the same manner and to the same extent as holders of the Shares. Such steps will include the submission, at the election of the IDR Holder, of the Deposited Shares represented by the IDRs for purchase to the Company or (in the case of a takeover offer) to the third party acquirer, and the distribution of the proceeds of such sale by the Depository to the IDR Holder in the event that the Deposited Shares are acquired pursuant to the open-market buy-back, tender offer or takeover offer.
Can the Deposited Shares represented by the IDRs be compulsorily acquired?
In the event that, pursuant to a takeover offer or otherwise, any person acquires 90% or more of the Shares, that person is entitled under the UK Companies Act to compulsorily acquire any Shares held by any person, including Deposited Shares represented by IDRs.
What happens if an IDR holding does not represent a whole number of Shares?
The rights of an IDR Holder will in general not be affected. So, for example, IDR Holders will have a proportionate entitlement to cash dividends, IDR Holders will receive all company communications which are sent to its Shareholders and the IDR Holders will be entitled to vote at a general meeting on a show of hands in respect of IDRs representing one Share and on a poll in respect of IDRs representing four Shares. Where IDRs represent less than a whole number of Shares, entitlements to participate in corporate actions, such as rights issues and share distributions will be affected. In these
circumstances, the IDR Holders will receive their proportionate entitlement to any cash amount which may be received by the Depository in respect of the relevant corporate action.
INFORMATION TO BE PROVIDED TO IDR HOLDERS BY THE DEPOSITORY
What notices relating to the IDRs will be provided to IDR Holders and how?
IDR Holders will, in general, receive through the Depository, a copy of all notices given by the Company to its shareholders. All notices will be mailed to IDR Holders at their respective addresses recorded in the Register maintained by the Registrar and, so long as the IDRs are listed on the BSE and/or the NSE and the rules of such exchanges so require, such notices will also be published in one leading Hindi and one leading English national newspaper in India.
What other information will IDR Holders be sent?
IDR Holders will be sent annual reports, prepared in accordance with the requirements of the IDR Listing Agreement and applicable laws. In certain circumstances, if permitted by applicable law, IDR Holders may only receive such information in electronic format, including by way of reference to a website where such information will be made available.
OBLIGATIONS OF IDR HOLDERS
Are IDR Holders required to disclose their ownership of the IDRs?
In certain circumstances, following receipt of a request from the Company or the Depository, IDR Holders may be required to provide information as to the capacity in which they hold or held IDRs and regarding the identity of any other persons then or previously interested in such IDRs and the nature of such interest and various other matters.
In addition, IDR Holders are also required to notify the Company in the event that they hold (whether through the IDR Facility or otherwise) 3% or more of the voting rights attached to the Shares of the Company and also at certain other specified thresholds.
An IDR Holder should be aware that non-compliance with such notification obligations could lead to it being subject to certain sanctions. Accordingly, each IDR Holder is advised to actively monitor all communications received by it at the mailing address recorded in the Register maintained by the Registrar for: (i) any information requests received from the Company or the Depository pursuant to Condition 20.2 and Condition 20.3; and (ii) independently, its obligation to comply with the Disclosure and Transparency Rules as set out in Condition 20.5.
AMENDMENT OF THE TERMS AND CONDITIONS
Can the terms and conditions of the IDRs be altered?
All and any of the terms and conditions of the Deposit Agreement may, at any time, and from time to time, be amended by written agreement between the Company and the Depository, provided that any approval of such regulatory authority as may be required in India, the United Kingdom or Hong Kong which is deemed necessary or desirable is first obtained.
Notice of any such amendment will be given to IDR Holders. Any amendment which increases or imposes fees or charges payable by IDR Holders or which is otherwise materially prejudicial to IDR Holders (as a class) will not become effective until three months after such notice is given to IDR Holders. During this three month period, IDR Holders may withdraw the Deposited Shares represented by their IDRs free of charge but otherwise in accordance with the Conditions. However, please refer above for certain restrictions that apply to the withdrawal of Shares by IDR Holders. Any IDR Holder who does not withdraw the Deposited Shares during this three month period will be deemed to have approved the relevant amendment and will be bound by such amendment.
DISPUTES IN RELATION TO THE IDRs
How can IDR Holders enforce the obligations of the Depository and the Company?
The Company has executed a Deed Poll which entitles an IDR Holder to enforce any provision(s) of the Deposit Agreement with which the Company fails to comply as if the IDR Holder were a party to the Deposit Agreement and was the Depository. The Deed Poll and the Deposit Agreement are governed by English law. IDR Holders may refer such dispute to arbitration in India in accordance with the Arbitration and Conciliation Act. Under the terms of issue of the IDRs, the Company, the Depository and IDR Holders from time to time agree that any dispute, controversy, cause of action or proceeding brought by any of them (including, for the avoidance of doubt, any former IDR Holders) arising out of or relating to the Deposited Shares or other Deposited Property, the IDRs or the Deposit Agreement, or any breach
thereof, including any question regarding existence, validity, termination, and any counterclaims that may be related thereto, must be referred to, and finally resolved by, binding arbitration in accordance with the Arbitration and Conciliation Act. Notices in this regard can be sent to the Compliance Officer appointed by the Company.
LIMITATIONS ON THE OBLIGATIONS OF THE COMPANY AND THE DEPOSITORY
Are there any limitations on the obligations and liability of the Company and the Depository?
The Conditions and the Deposit Agreement expressly limit the obligations and liability of the Company and the Depository. Neither the Company nor the Depository shall incur any liability to an IDR Holder if either of them shall be prevented, delayed or forbidden from doing or performing any act which they are required to perform by reason of (i) any provision of any present laws (save for Indian and English law) or any future applicable law or regulation of any country or of any relevant governmental authority or interpretation thereof; (ii) any future provision of the constitutive documents of the Company; or (iii) any other circumstances beyond their control.
Further, save in cases of wilful default, negligence or bad faith and, in certain cases, breach of contract, the Depository shall not be liable for (i) exercising or any failure to exercise discretion under the Deposit Agreement; (ii) having accepted as valid or not having rejected any certificate for Shares or any IDR Certificate purporting to be such and subsequently found to be forged or not authentic; (iii) any terms of sale or conversion of any Deposited Property, if required, or if such sale or conversion shall not be possible for any reason; or (iv) any failure to determine that it may be lawful or practicable to make rights available to IDR Holders in general or to any IDR Holder in particular in connection with a rights issue of the Company.
TERMINATION OF THE IDR FACILITY
Under what circumstances may the IDR Facility be terminated (by means of a termination of the Deposit Agreement) and what happens in these circumstances?
There are three circumstances in which the IDR Facility (by means of a termination of the Deposit Agreement) may be terminated and the IDRs consequently delisted: (i) at the option of the Company; (ii) by the Stock Exchanges by reason of a breach by the Company of applicable rules and regulations; or (iii) if the Shares are delisted resulting in such Shares not being listed on any securities exchange in any jurisdiction. Under the Deposit Agreement, the Depository is required to give notice of termination of the IDR Facility (by means of termination of the Deposit Agreement) to IDR Holders and the consequent delisting of the IDRs under each of the circumstances described above.
In the case of a termination of the Deposit Agreement and consequent de-listing of the IDRs for the reasons described under (i) and (ii) above, there are two alternative ways in which value may be returned to IDR Holders: either (1) each IDR Holder may elect to receive the relevant Deposited Property on payment of any sums payable by the Depository to the Custodian and/or any other expenses incurred by the Depository in connection with such withdrawal (the right to withdraw being subject to certain limitations as described elsewhere in this section); or (2) the Depository will sell the Shares attributable to the relevant IDRs and will deliver the net proceeds of any such sale, together with any other Deposited Property then held by it under the Deposit Agreement, pro rata to the relevant IDR Holders.
In the case of a sale of Shares under (2) above, the Shares will be sold at the prevailing market rate on the London Stock Exchange and the cash distributed to that IDR Holder within 15 Business Days of the completion of the sale of all of the relevant Deposited Property. Neither the Depository, the
Company nor any of their respective agents will be responsible or liable for any loss or damage (whether actual or alleged) arising from the terms of or timing of any sale. In the case of a termination of the Deposit Agreement and consequent de-listing of the IDRs for the reasons described under (iii) above, the IDR Holders will receive the Shares and other Deposited Property relating to their IDRs on payment by the IDR Holders of any sums payable by the Depository to the Custodian and/or any other expenses incurred by the Depository in connection with such delivery. The mechanism for selling the Shares described above will not be available if the Shares are delisted. In addition, it will not be possible to deliver fractions of a Share; fractions will therefore be disregarded. In all the above circumstances, the IDRs will be cancelled after Deposited Property has been transferred to IDR Holders or, as applicable, sold as described above.
