DEPOSITORY RECEIPTS SCHEME, 2014

The Ministry of Finance, on October 21, 2014, notified the Depository Receipts Scheme, 2014, amending and repealing the issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, to the extent applicable to the issuance of depository receipts. The Scheme was implemented, pursuant to the recommendations of the Sahoo committee to Review the FCCBs and Ordinary Shares (Mechanism) Scheme, 1993, with a view to increase participation by Indian companies in overseas financial markets and to facilitate raising of capital from global investors. The Scheme, governing the issue depository receipts, came into force from December 15, 2014.

Depository Receipts are generally classified as under:

Sponsored

A sponsored issue of depository receipts is based on a stock agreement, between the foreign depository and the issuer of securities for the creation of the depository receipts. The sponsored depository receipts can be further classified as:

Capital Raising: The Indian issuer deposits the freshly issued securities with the domestic custodian. On the basis of such deposit, the foreign depository then creates/issues depository receipts abroad for sale to global investors. This constitutes a capital raising exercise, as the proceeds of the sale of depository receipts eventually go to the Indian issuer.

Non-Capital Raising: In a non-capital raising issue, no fresh underlying securities are issued. Rather, the issuer gets holders of its existing securities to deposit these securities with a domestic custodian, so that depository receipts can be issued abroad by the foreign depository. This is not a capital raising exercise for the Indian issuer, as the proceeds from the sale of the depository receipts go to the holders of underlying securities.

Unsponsored
Where there is no stock agreement between the foreign depository and the Indian issuer, any person, without any involvement of the issuer, may deposit the securities with a domestic custodian in India. A foreign depository then issues depository receipts abroad on the back of such deposited underlying securities. The proceeds from the sale of such depository receipts go to the holders of the underlying securities. Based on whether a depository receipt is traded in an organised market or in the Over the Counter (“OTC”) market, the depository receipts can be classified as listed or unlisted.

Listed: Listed depository receipts are traded on stock exchanges.

Unlisted: The unlisted depository receipts are those which are inter-traded between parties and where such depository receipts are not listed on any stock exchanges.