Indian companies can now use the international stock exchanges operating out of GIFT City in Gujarat to list their depository receipts.

This in a way is expected to enable the Indian companies increase access to foreign funds through the listing of global/American depository receipts (GDRs) in a market closer home, say capital market observers.

The Centre has now amended the Depository Receipts Scheme 2014 to allow International Financial Services Centre (IFSC) set up in India (like the GIFT City in Gujarat) as a permissible jurisdiction for listing of depository receipts.

Currently, both the NSE and the BSE have their international bourses operating out of GIFT City.

Speaking to BusinessLine , Tapan Ray, Managing Director & CEO, GIFT City, said the notification of GIFT IFSC as one of the jurisdictions for GDR listing would be a key enabler for overseas fund-raising by Indian institutions using IFSC platform at GIFT City.

The Finance Ministry’s latest move should be seen as an effort to onshoring the offshoring, which involved Indian companies listing their GDRs/ADRs in Nasdaq and NYSE in the recent decades, a capital market observer said.

Indian companies hitherto had to look at overseas bourses in far away countries to list their depository receipts. But things could change with the latest amendment in the depository receipts scheme.

Ball is in SEBI’s court

A depository receipt (DR) is a negotiable (transferable) financial instrument that is traded on a local stock exchange but represents a security, usually in the form of equity, issued by a foreign, publicly listed company. Basically, DRs make it easier to buy shares in foreign companies because the shares of such a company do not have to leave the home state.

All eyes are now on SEBI to see if it would take steps to operationalise the liberalised Depository Receipts Scheme that the Centre framed nearly five years ago, but failed to implement it due to concerns raised by the capital market regulator.

Although the liberalised norms for DRs were notified in December 2014, SEBI had opposed their implementation, citing concerns over difficulties in tracking the ultimate beneficiary and the potential for money laundering and unsolicited takeovers.

But now, these concerns seem to have been allayed and the decks cleared for implementation of the liberalised DR scheme, sources said.

Finance Minister Nirmala Sitharaman had, in end-August, as part of a 32-measure package to boost the slowing economy, said that SEBI is expected to act on the implementation of the 2014 scheme.

Before the government came up with the 2014 scheme — which was framed on the basis of a report of a committee headed by MS Sahoo (currently IBBI Chairman) — DR issuances were regulated under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

What’s new

So, how was the liberalised DR scheme framed in 2014 different from the earlier framework? The new framework proposed that Indian companies be allowed to issue DRs in overseas markets against any underlying security such as bonds debentures and mutual funds. Currently, they are allowed to issue DRs only against their underlying shares.

The new framework will also pave the way for un-sponsored DR, where a depositary bank issues a DR without the involvement, participation or even the consent of the foreign issuer whose stock underlies the DR.

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