After allowing unlisted India-registered companies to list on exchanges abroad, the government is all set to ease norms for companies to raise money through American Depository Receipts (ADR) issues in overseas equity markets.
Sources in finance ministry said companies will now be allowed to issue level 2 and level 1 ADRs, which are easier and less expensive ways to raise money. Currently, Indian-listed companies are allowed to issue what is known as level 3 ADRs.
Level 2 ADRs have easier listing requirements and can be listed on Nasdaq, while level 1 ADRs have the loosest listing requirements by the SEC and do not need to be listed. They can be traded over-the-counter.
Level 3 ADRs, on the other hand, mean the company has to fulfill all conditions placed by the US Security and Exchange Commission (SEC) to list such an instrument on exchanges like Nasdaq and New York Stock Exchange (NYSE).
The move is one of the series of capital market reforms India is attempting to increase inflows.An American Depository Receipt (ADR) is a certificate issued by a US bank representing a specified number of shares in a foreign company’s stock that is traded on a US exchange.
The level 1 and level 2 ADRs are ideal for foreign companies that either don’t qualify or don’t wish to have their ADR listed on an exchange, officials said.
Of course, these have less visibility compared to level 3 ADRs but since the market for over-the-counter securities is bigger than that of listed securities, companies will be able to raise larger amounts from such instruments.
The ministry has set up a committee which has officials from capital markets, Sebi and RBI, a government official with knowledge of the matter said.
The panel will look into all aspects of allowing companies to issue level 1 and 2 ADRs and will submit its recommendations and the details of such moves by end October.
The official added that the move should be notified by November 15. While the details are still being deliberated by the committee, it is expected that the money raised from issuing such ADRs can be used for companies’ overseas operations, or they can be brought back to India, provided they are parked only in authorized dealer category banks recognized by RBI.
The official added that requests for ADR requirement easing comes from industry bodies like Assocham, Ficci and CII, and also from GMR, SREI Infrastructure Finance and other infrastructure players, most of which are seeking investment to finance various projects.
