Disinvestment of Shares by Indian Companies
The operative guidelines for disinvestment 01
shares by Indian companies in the overseas market,through issue' of Assignors, is surprised below. . (I) Disinvestment of holdings, y shareholders of Indian companies in the overseas markets
would be allowed through the mechanism of sponsored AD GR issue cording t( whether they are (a) listed in India, (b) not listed in India but are listed overseas. (D) The process of disinvestment would be initiated by Indian companies. whose shares all being offered for disinvestment in the overseas market, by sponsoring AD
GR issues gain! the block of existing shares offered by the shareholders, under the provisions of these guidelines. (ill) Such a facility would be available pair pass to all categories of shareholders of the com pan whose shares are being sold in the AD GR market overseas. This would ensure that r • class of shareholders gets special dispensation.
The sponsoring company, whose shareholders propose to divest existing shares in the overseas market through issue of Dragsters, hold ive an option to all its shareholders indicating the number of shares to be divested and the mechanism through which tile price would be etermined under the ADIVGDR norms. If the shares offered for divestment are more than the per-specified numbers to be divested, shares hould be accepted for divestment in proportion to existing holdings. (v) The proposal for divestment of the existing shares in the ADRlGDR arket would have to be approved by a special resolution of the company whose share~ are being divested. (vi) The proceeds of the DRlGDR issue raised abroad should be repatriated into India within
a period of one month of the closure of the "issue. - (vu) Such DRl GDR issue against existing shares, arising out of the divestment, would also come Within. the purview of the existing SEBI Takeover ode jf the ADRs/GDRs are cancelled and the investors holding underlying shares are to be registered with the company as shareholders. (vill) Divestment of existing shares of Indian companies in overseas markets for issue of ADRsI GDRs would be reckoned as FDI. 'Such proposals would require FlPB approval as also other approvals, if any, under the FDI policy. . (Ix) Such divestment inducting foreign equity would also need to conform to the FDI sectoral policy and the prescribed sectoral cap, as applicable. Accordingly, the facility would not be available to companies, whose shares are to be divested, are engaged in activities where FDI Cs not permitted. (x) Each case would equire the approval of FlPB for foreign equity induction through
offer of existing shares under the Adrenal route. (xl) Other mandatory approvals such as those under the Companies Act, and so on, as applicable, would have to be obtained by the company prior to the ADR GDR ssue .. (xU) Issue related expenses (covering both fixed expenses like underwriting commissions, lead manager's charges and legal- expenses as well as reimbursable expenses) for public issues would be subject to a ceiling of 4 per cent in the case of GDRs and 7 per cent in he case of ADRs and 2 per cent in case of private placements of Ad Rs/GDRs. Issue expenses beyond the ceiling would need the approval of he RBI. The issue expenses should be passed on to the shareholders panicipating in the sponsored issue, on a pro rata basis. (sill) Shares armarked for the nonsegregated- issue may be kepi in an escrow account created for ,this-purpose and, in any case, 'the retention of hares in such escrow account should not exceed ihree months. . (xlv) If the issues of ADRlGDR are made in more than one tranche, each ranch would have to be treated as a separate transaction. (xv) The resident shareholders of Indian companies, who offer their shares for inversion to Dragsters, can receive the sale proceeds in foreign currency. However, the conversion to such ADRslGDRs should have the approval
of 'the- Foreign Investment Promotion Board (FlPB). The sale proceeds are also permitted to be credited to their Exchange earners Foreign CurrencylResident Foreign Currency '(Domestic) [Cheerfuller(D)] accounts or to their rupee. accounts, at their option. isinvestment proceeds receivable by residents who have since become non-residents would also be eligible for credit to their foreign urrency accounts abroad C!r any of their accounts in India, at their option. (xvi) After completing the transactions, the companies would eed to furnish all particulars thereof, including the amount raised through Dragsters, number of Dragsters issued and the underlying hares offered, percentage of foreign equity level in the Indian company on account of issue of Ad Rs/Gd Rs, details of issue parameters, etails of repatriation and allother details 10 the RBI within 30 days of completing such transactions.
(xvU) the tax provision under Section 15-AC of the Income Tax Act, 1961, which is applicable to non-resident investors for ADRlGDR offers against issue of fresh underlying hares, would extend to non-resident investors investing in foreign exchange in ADRslGDRs issued against disinvested existing shares, in erms of the relevant provisions of the Income Tax Act, 1961. (xvill) Resident shareholders divesting their holdings would be subject to apital gains tax provisions applicable under the Income Tax Act, 1961, that is, Section 115-AC applicable 10 nonresidents would not be tended to them.