Fund-raising through ADRs may get easier

India Inc Could Get Access To Level-1 ADRs THE government is examining a proposal that seeks to relax rules governing American Depository Receipts (ADRs) to allow Indian companies access the US market through more liberal offerings.      The finance ministry is deliberating on whether Indian companies should be allowed to issue level-1 ADRs, which need very few regulatory disclosures, an official with the ministry said, requesting anonymity.      Level-1 issues do not involve issue of fresh capital, but allow overseas companies to diversify their investor base and build a presence in the US market that may help them raise capital later.      India currently allows only level-3 ADR/GDRs, which involve capital raising and listing on regular overseas exchanges and greater disclosure levels, including costly compliance with US laws.      Level-I ADRs, the most liberal form of depository receipts, allow non-US companies to access sophisticated investors in the US market with minimal reporting requirements from the US Securities and Exchange Commission (SEC).      Companies issuing level-1 ADRs are listed only on the over-the-counter (OTC) exchanges in the US and do not have to comply with the rigorous US accounting standards, US GAAP. A majority of ADRs currently being traded are issued through level-1 programmes.      The official said policy experts are divided on whether such ADRs should be allowed at present. Incidentally, a high-powered committee chaired by Planning Commission member Saumitra Chaudhuri, who is also a member of the Prime Minister's Economic Advisory Council, set up to look into the existing norms governing ADR/GDR issues had opined that the time was not ripe to allow level-1 ADRs.      The view against allowing such ADRs has been that it allows the export of Indian equities abroad and does not generate any value for the country.Policymakers opposed ADR plan  THE idea behind allowing Indian companies access to ADR/GDR issuance was to support inward flow of capital into the country, and with level-1 not really fulfilling this objective, some policymakers have strong reservations against such a change.      The alternate view is that since the overall regime is inclined towards further liberalisation, it may be time to do away with this restriction. This kind of ADR/GDR issues, which do not entail any inflow of capital into the country, allow companies to build their brand before making an actual float on the stock exchanges to raise capital. "The government should selectively allow index companies, Sensex or Nifty, the option of registering under level-1 and level-2. Under market economy, this option should be available to companies. This should be done keeping in mind the regulator's role of deepening and broadening the capital market," said Sanjay Hegde, executive director, PwC. Bank of New York and some others have been lobbying in India for this policy change and had even made a presentation before the highpowered committee. Some of the other key recommendations made by the committee such as relaxation in the pricing norms for ADR/GDR issuance have already been implemented by the government.