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.

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