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Know Law
Labz India Notification 12 of 2012
A written-cum-video initiative to know your corporate legal position as on date
Legal Queries???
How to utilize & escalate your company’s resources? Are you confident that you have utilised the company's resource to the fullest potential!!! What is your market capitalisation of the company? Do you want your declaration of financial results to be a national affair? Have you exploited all sources of funding for your business? Whether your company is enjoying a bigger brand value across the globe? Are you exploring the possibilities of various funding options internationally? How to raise money from abroad? Do you want to list your company in foreign stock exchanges like NASDAQ, London Stock Exchange, Australian Stock Exchange? Have you heard about depository receipts and how does it works? What are the instruments available ro raise money? Can foreigners invests in an Indian company through secondary market with less compliance requirement? Can an Indian company lists abroad without having any overseas branches of its office?
Solution…
International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges
Raising money from abroad is a good option provided you have a feasible and viable project in hand, since there more investors abroad when compared to India. This option can be utilized by a company interested in capturing resources of international market, provided it complies with the criterion of past track record & performances as prescribed.
International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges requires approval under Company laws, Securities laws, FEMA regulations, approvals of FIPB and approvals of stock exchange from abroad and India. This process involves preparation of offer documents, appointment of market intermediaries like merchant banker, satisfying criterion with depositories and custodian banks in India and abroad, collecting investments, issuing shares and listing in stock exchanges abroad. Read More...
Requirement under Indian laws on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:
Indian laws treat the depository receipt as foreign direct investment. The law permits denomination of securities in freely convertible foreign currency and can be floated abroad in countries like United States, European Union, Australia with less procedural requirement the respective countries regulators like Securities Exchange Commission. The FEMA regulations read with Depository receipt mechanism provides for issue of securities abroad and conversion of the bonds/instruments in foreign currency into underlying equity shares with voting rights in India after a cooling period through various intermediaries like Overseas Custodian Bank, Domestic depository in India, etc… In certain cases, the Ministry of Finance and Department of Economic Affairs may be required in addition to the one-time and periodical reporting requirement under Reserve Bank of India (RBI) regulations.
Myth buster on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:
Huge formalities involved as to lock-in period of securities, the limits on number of issues per year, the end-use restrictions & lot of regulatory approvals required!!! No, the issue process is a plain vanilla procedure with simple conditions on issue expenses and two-stage reporting requirements like a foreign direct investment into India. The value of money that can be raised as a tap issue or as tranches has no limit as per Indian laws. Further, the amount so raised may be used for whatsoever purposes unless it is an instrument like Foreign Currency Convertible Bonds (FCCB’s) where there is a restriction as applicable to External Commercial Borrowings (ECB). Even further, the procedural clearance abroad for issues in alternate investment market of their country is relatively simple.
Caution point on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges!!!
The compliance of requirements of Indian Company law as to issue of shares shall be duly complied with and necessary e-forms are filed with Registrar of Companies on time. The pricing shall be done based on the date of meeting as to the closing average high & low prices of shares in Indian Stock Exchanges. Agreements with intermediaries shall be entered into. Care should be taken while drafting the Offering Circular, the prospectus like offer document which should provide for all information that is required for an investor to take decision. The prior approval of Reserve Bank of India may be required based on the sectoral cap under Foreign Direct Investment Regulations. Also ensure the in-principle approval for listing is obtained from the stock exchanges for issue of securities in India. Even the benefit of double taxation avoidance agreement can be enjoyed for depository receipts. Ensure the RBI reporting shall be done promptly on 30 days of closure of issue and a quarterly reporting within 15 days.
WATCH LAWLABZ VIDEO on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges in India!!! (Click Here):
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