ecb, gdrs and adrs

7/30/2019 Ecb, Gdrs and Adrs

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EXTERNAL COMMERCIAL BORROWINGS

GLOBAL DEPOSITORY RECEIPTS


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EXTERNAL COMMERCIAL BORROWINGS (ECB)

External Commercial Borrowings (ECB)refer to commercial loans (i.e. bank loans,

buyers credit, suppliers credit etc.)

availed from non-residents lenders withminimum average maturity of 3 years. It

can be accessed under two routes

Automatic Route

Approval Route


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AUTOMATIC ROUTE (ECB)

ECB for investment in real sector industrialsector, especially infrastructure in India, willbe under Automatic Route, i.e. it will notrequire RBI/Government approval. If

applicant is having doubt, he/she can takerecourse to the Approval route.

Eligible Borrowers: Corporate registeredunder the companies act except financialintermediaries (i.e. Banks, NBFCs, FinancialInstitutions etc) are eligible borrowers.Individuals, trust and non-profit making

organizations are not eligible to raise ECB


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AUTOMATIC ROUTE (ECB)

Recognized Lenders : Borrowers can raise ECBfrom internationally recognized sources such asInternational Banks, International capital markets,Multilateral financial institutions, export creditagencies, suppliers of equipment etc.

Individual Lenders such as supplier of equipmentshas to obtain a certificate of due diligence fromand overseas bank indicating that the lendermaintains an account with the bank for at least aperiod of two years. Other documents such asaudited statement of account and income taxreturn which the overseas lender may furnish needto be certified and forwarded by the overseas

bank.


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APPROVAL ROUTE (ECB)

The following types of proposals for ECB will be

covered under the Approval Route Eligible Borrowers:

Financial Institutions dealing exclusively withinfrastructure or export finance such as IDFC, powerfinance corporation etc will be considered on case tocase basis

Banks and financial institution which had participatedin the textile or steel restructuring package asapproved by the government will also be permitted tothe extent of their investment in the package and

assessment be made by RBI. Any ECB availed forthis purpose so far will be deducted from theirentitlement.

Case falling outside the purview of the automaticroute limits and maturity periods.


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GLOBAL DEPOSITORY RECEIPTS (GDR)

GDRs are internationally traded equityinstruments. There are issued byinternational depositories and denominated inUS dollars. They represent a fixed ratio of

Indian Shares Quoted on BSE. However thephysical possession of the underlying Indianshares is vested with a custodian based inIndia, who acts as an agent for the

depositories concerned. GDRs are negotiablecertificates and are freely trades in financialmarkets of US and Europe


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PROCEDURE (GDR)

In the run-up to GDR issue, the company thatseeks to issue GDRs has to pass a resolutionin its Board to that effect. An application isthen made to the Ministry of Finance, whileaccording the approval, MOF accordsapproval for a specified price range only asthe finalization of the pricing aspect isconcluded just before the issue opens,having regard to the prevailing market

conditions The shares are issued by the company to the

depository only and the shares are registeredin the books of company in the name of

depository only.


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GDRS

There after the depository issues theGDRs to the ultimate investors which are

freely tradable in major financial markets

The dividend payout is done by thecompany in Rupees to the depository. The

depository makes its own arrangement to

make the dividend payment to the GDRholders. GDR once issued may be

cancelled but only after 45 days period.


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ADVANTAGES OF GDRS

Issue of GDR enhances the corporate image ofthe company in the international financial circlesas the company becomes more visible, GDRissues are a step in the direction of becoming anestablished global player

With a view to initially attract the potentialinvestors, the pricing of the GDRs is done at adiscount to the domestic prices.

Since GDR holders do not appear in the books ofthe company as equity holders, they are not

subject to the regulatory control span of authoritieslike SEBI etc. unlike FIIs who make directinvestment into Indian papers and thus bear thecurrency fluctuation risk as well.


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AMERICAN DEPOSITORY RECEIPTS (ADRS)

ADRs are US dollar denominated equity instrumentswidely traded in US financial markets. While GDR aretechnically tradable world over, in reality it is seen mostlytraded only on the Luxemberg and thus catering toEuropean market only. To get entry in to US market one

has to issue ADRs. Issuance of the ADRs requires strict compliance with the

guidelines issued by USD security Exchange RegulationCommission, the counterpart of SEBI in India.

Trading on ADRs can be done by Qualified InstitutionBuyers, Known as QIBs.

The main advantage of the ADR rules is the visible imageof the company that could be created in the US financialmarkets. Entry in to US could be helpful in setting upmutually rewarding business relationship by way of JointVenture etc.


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Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes YesHindalco No Yes

ICICI Bank Yes Yes

Infosys Technologies Yes Yes

ITC No Yes

L&T No Yes

MTNL Yes Yes

Patni Computers Yes No

Ranbaxy Laboratories No Yes

Tata Motors Yes No

State Bank of India No Yes

VSNL Yes Yes

WIPRO Yes Yes


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ecb, gdrs and adrs

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