What changed
The Government amended the 1993 FCCB and Ordinary Shares (Depositary Receipt) Scheme to align ADR/GDR guidelines with SEBI's domestic capital issue guidelines. Key changes include: (a) listed companies ineligible to raise funds domestically or restrained by SEBI cannot issue FCCBs or shares via GDRs; (b) OCBs and entities prohibited by SEBI cannot subscribe to such issues; (c) pricing of GDR/FCCB issues must be at least the higher of the average of weekly high-low closing prices over six months and the same average over two weeks preceding the relevant date.
What it means for you
Banks and ADs must ensure that any client company seeking to issue ADRs/GDRs or FCCBs is not barred from the domestic capital market or by SEBI. The new pricing rule tightens the floor price, potentially reducing discounting flexibility. Subscription restrictions on OCBs and SEBI-prohibited entities narrow the investor base, affecting deal structuring.
What you must do
- Update internal compliance checklists to verify issuer eligibility under SEBI domestic market access rules before processing ADR/GDR/FCCB applications.
- Advise corporate clients that pricing must now be at least the higher of the average of weekly high-low closing prices over six months and the same average over two weeks preceding the relevant date.
- Screen all subscribers for OCB status or SEBI prohibitions; reject subscriptions from ineligible entities.
- Communicate these changes to constituents and customers dealing with depositary receipt or FCCB issues.
Who it affects
Authorised Dealer banks handling foreign exchange transactions, Indian listed companies planning ADR/GDR or FCCB issues, Investment banks and advisors structuring such offerings, Overseas Corporate Bodies (OCBs) and SEBI-restricted entities
What is the new pricing rule for GDR/FCCB issues?
The issue price must be at least the higher of: (i) the average of weekly high and low closing prices over the six months preceding the relevant date, and (ii) the average of weekly high and low closing prices over the two weeks preceding the relevant date. This aligns with SEBI's domestic pricing guidelines.