ADR and GDR ADR and GDR

SAPiZNATION

Global Depositary Receipts Global Depositary Receipts (GDR) (GDR)

American Depositary American Depositary Receipts (ADR) Receipts (ADR)

Foreign Currency Convertible Foreign Currency Convertible Bonds (FCCB)Bonds (FCCB)

Depository receipts are instruments issued by Depository receipts are instruments issued by international depositories (ODB), and they international depositories (ODB), and they represent an interest in the underlying shares represent an interest in the underlying shares held by them in the issuer company (Indian held by them in the issuer company (Indian company). The shares are usually held by a company). The shares are usually held by a domestic custodian on behalf of the domestic custodian on behalf of the depositories and the depositories in turn issue depositories and the depositories in turn issue the depository receipts, which entitle the the depository receipts, which entitle the holder of the receipts to get the underlying holder of the receipts to get the underlying shares on demand. shares on demand.

The depository receipts themselves, which The depository receipts themselves, which represent an interest in the underlying represent an interest in the underlying securities, are in turn securities that are securities, are in turn securities that are capable of being listed on international stock capable of being listed on international stock exchangesexchanges

They can be converted into ordinary shares of They can be converted into ordinary shares of issuing companyissuing company

Conditions to be fulfilled by Conditions to be fulfilled by issuing domestic companyissuing domestic company

FCCB- in foreign currency(Foreign currency FCCB- in foreign currency(Foreign currency bonds)bonds)

Ordinary shares of issuing company should Ordinary shares of issuing company should be in Indian currencybe in Indian currency

The issued ordinary shares or bonds should The issued ordinary shares or bonds should be delivered to DCB(Domestic custodian be delivered to DCB(Domestic custodian bank)bank)

DCB instructs ODB(Overseas depository DCB instructs ODB(Overseas depository Bank) to issue GDR/ADR certificates to non- Bank) to issue GDR/ADR certificates to non- resident investors against the shares in DCBresident investors against the shares in DCB

GDR may be listed on any international stock GDR may be listed on any international stock exchange for trading outside India.exchange for trading outside India.

Prior permission from Department of Prior permission from Department of Economic affairs, Ministry of finance, GOIEconomic affairs, Ministry of finance, GOI

Indian companies are allowed to raise Indian companies are allowed to raise equity capital in the international equity capital in the international market through the issue of market through the issue of GDR/ADRs/FCCBs. These are not GDR/ADRs/FCCBs. These are not subject to any ceilings on investment. subject to any ceilings on investment. An applicant company seeking An applicant company seeking Government's approval in this regard Government's approval in this regard should have a consistent track record should have a consistent track record for good performance (financial or for good performance (financial or otherwise) for a minimum period of 3 otherwise) for a minimum period of 3 yearsyears

Issue of GDRs/ADRs by IT software Issue of GDRs/ADRs by IT software /services companies/services companies

Eligible to offer to non residents/resident Eligible to offer to non residents/resident permanent employees including overseas working permanent employees including overseas working directors against the issue of ordinary shares.directors against the issue of ordinary shares.

Atleast 80% of its turnover is from software Atleast 80% of its turnover is from software related activities.related activities.

Annual export earning of 100 crore from such Annual export earning of 100 crore from such company.company.

The shares issued against ADR/ GDR ahould be The shares issued against ADR/ GDR ahould be treated as direct foreign investment in the issuing treated as direct foreign investment in the issuing company.company.

It can not exceed more than 51% of the It can not exceed more than 51% of the subscribed capital.subscribed capital.

Advantages of ADR/GDRAdvantages of ADR/GDR 1. Can be listed on any of the overseas 1. Can be listed on any of the overseas

stock exchanges/OTC/Book entry stock exchanges/OTC/Book entry transfer systemtransfer system

2.Freely transferable by non resident2.Freely transferable by non resident 3.They can be redeemed by ODB3.They can be redeemed by ODB 4.The ODB should request DCB to get 4.The ODB should request DCB to get

the corresponding underlying shares the corresponding underlying shares released in favour of non resident released in favour of non resident investors.(Share holder of issuing investors.(Share holder of issuing company)company)

Capital gainCapital gain Sale price of shares- conversion price Sale price of shares- conversion price Conversion price= price of shares at Bombay Conversion price= price of shares at Bombay

Stock Exchange or NSE on the date of Stock Exchange or NSE on the date of conversion of ADR/GDR into shares.conversion of ADR/GDR into shares.

From the date of conversion into shares till From the date of conversion into shares till the date of sale is more than 12 months-long the date of sale is more than 12 months-long term capital asset-10% taxterm capital asset-10% tax

Less than 12 months-short term –normal rate Less than 12 months-short term –normal rate of tax.of tax.

All trading transaction outside India by non-All trading transaction outside India by non-resident-not taxable in Indiaresident-not taxable in India

After redemption of After redemption of ADR/GDR?ADR/GDR?

The shares held by nonresident investorThe shares held by nonresident investor

The dividend received on such shares is The dividend received on such shares is taxable at 10%taxable at 10%

Double taxation agreementDouble taxation agreement As long as the underlying shares are As long as the underlying shares are

with custodian bank and before they with custodian bank and before they are sold by nonresident to resident-are sold by nonresident to resident-concesstional treatments applicableconcesstional treatments applicable

It is also applicable for the dividend and It is also applicable for the dividend and received or capital gain on transfer of received or capital gain on transfer of underlying shares.underlying shares.

Gift tax and wealth taxGift tax and wealth tax As long as ADR/GDR or under lying As long as ADR/GDR or under lying

shares with ODB exempted from shares with ODB exempted from WEALTH TAX .WEALTH TAX .

If they are gifted to nonresident-not If they are gifted to nonresident-not treated as income of the recipient.treated as income of the recipient.

If gifted to resident- treated as income If gifted to resident- treated as income of the recipient.of the recipient.

TaxationTaxation 1. Dividend- Taxed AT THE RATE OF 1. Dividend- Taxed AT THE RATE OF

10%10% The issuing company should transfer The issuing company should transfer

the net dividend (after TDS at 10%) to the net dividend (after TDS at 10%) to ODBODB

ODB distribute them to Non-residents ODB distribute them to Non-residents proportionately to their holdings.proportionately to their holdings.

Credit also be given Credit also be given