Govt tightens norms for GDR seekers

This means companies like Rediff and Sify, which are unlisted in India but listed abroad, will have to list in India soon. Both the firms are making losses at the moment, but they have listed more than three years ago.

Besides, unlisted companies, which have not yet accessed the GDR/FCCB route for raising capital in the international market would require prior or simultaneous listing in the domestic market, while planning to issue FCCBs or GDRs.

Overseas Corporate Bodies (OCBs), which are not eligible to invest in India through the portfolio route and entities prohibited to buy, sell or deal in securities by Sebi, will not be eligible to subscribe to the FCCB or GDR issues.

Also, an Indian company that is not eligible to raise funds from the Indian capital markets, including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (Sebi), will not be eligible to issue FCCBs or GDRs.

With a host of companies now rushing to raise funds abroad, the government also put curbs on the pricing front. The notification said GDR/FCCB issues should be made at a price not less than the higher of the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date.

Also, the price should not be less than the higher of the average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.

The “relevant date” means 30 days prior to the meeting of the general body of shareholders, in terms of section 81 (IA) of the Companies Act, 1956, to consider the proposed issue.

Earlier, companies had the freedom to price their shares as per their whims and fancies. As many companies overpriced their GDRs in the 1990s, foreign investors lost money in several Indian companies.

The voting rights will be as per the provisions of the Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on GDR issues will be consistent with the company law provisions.

The RBI norms regarding voting rights in the case of banking companies will continue to be applicable to all shareholders exercising voting rights.