Fully Automatic: Sponsored ADR/GDRs can bypass FIPB

NEW DELHI: In what could signal a further liberalisation of the foreign investment regime, the government is planning to allow sponsored American depository receipts (ADR)/
global depository receipts (GDR) issues of companies through the automatic route.

This means that companies would no longer need the approval of the foreign investment promotion board (FIPB) for issuing sponsored ADR/GDRs. Instead, they can go ahead with such offers after informing the RBI about their respective proposals.

Sources said that the two departments concerned with ADR/GDR issue and FDI policy — the department of economic affairs and the department of industrial policy and promotion — would first review the existing policy guidelines regarding the issue of sponsored ADR/GDRs and then make the changes required to bring it under the RBI’s automatic route.

Also, the proposal may have to go to the Cabinet Committee on Economic Affairs (CCEA) for final approval. This move comes in the wake of companies joining the sponsored ADR/GDR bandwagon.

Though the issue of fresh shares through the ADR/GDR route is currently automatic, companies going for sponsored ADR/GDRs have to seek FIPB approval.

This is because such an issue amounts to secondary market transactions, where existing shares are offered for sale via sponsored issues instead of fresh shares.