SEBI issues Framework for issuance of Depository Receipts by listed Companies

The Securities and Exchange Board of India, vide circular dated 10th October 2019, has issued a detailed framework for issuance of depository receipts, by listed Companies.

Key highlights of the framework:

  1. Listed companies are eligible to issue permissible securities provided their promoters, directors and selling shareholders are not barred from accessing the capital markets by SEBI, and that they are not wilful defaulters or economic offenders.
  2. The existing holders in a listed company, are also be eligible to transfer permissible securities, for the purpose of issuance of DR.
  3. An initial issue and listing of DRs, pursuant to ‘transfer by existing holders’, the Listed Company shall provide an opportunity to its equity shareholders to tender their shares for participation in such listing of DR .
  4. Subsequent issue and listing of DRs, pursuant to ‘transfer by existing shareholders’ may take place subject to the limits approvedpursuant to a special resolution in terms of GDR Rules.
  5. A company proposing to make a public offer and list on a recognised stock exchange, and planning to issue permissible securities or transfer such securities of existing holders, for the purpose of issue of DRs and listing such DRs on an international stock market, would seek in-principle as well as final approval from the Indian exchange as well as overseas stock market. However, such issue or transfer of permissible securities for the purpose of issue of DRs shall be subsequent to, the receipt of trading approval from the recognised stock exchange.
  6. Listed Companies will be allowed to issue permissible securities for the purpose of issue of DRs only in permissible jurisdictions and such DRs will be listed on specified international stock market
    • Permissible jurisdiction, according to SEBI, includes a jurisdiction which has treaty obligations to share information and cooperate with Indian authorities in the event of any investigation.
  7. Listed company shall ensure that the aggregate of permissible securities which may be issued or transferred for the purpose of issue of DRs, along with permissible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such permissible securities under the applicable regulations of FEMA.
  8. Listed company shall ensure that any public disclosures made by the listed company on international exchange in compliance with the requirements of the permissible jurisdiction where the DRs are listed or of the international exchange, are filed with the recognized stock exchange as soon as reasonably possible.
  9. In case of a simultaneous listing of such securities on Indian stock Exchange pursuant to a public offer and DRs on the overseas bourse, SEBI said the price of issue of DRs by foreign depository should not be less than the price for the public offer to domestic investors
  10. Obligations on Indian Depositories is that it should be in consultation with each other to develop a system to ensure aggregate holding of DR holders along with their holding, through offshore derivative instruments and holding as a Foreign Portfolio Investment (FPI) belonging to same investor group shall not exceed the limit on foreign holding under the FEMA and applicable SEBI regulations.

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