In an attempt to deepen the capital markets, a committee headed by Saumitra Chaudhuri to review American and global depository receipts and foreign currency convertible bonds, has made a slew of recommendations to allow Indian companies can raise more money locally and to encourage foreigners to invest here.
After examining the foreign currency convertible bond market overseas, the 10-member committee has concluded that this market can be brought onshore with the introduction of domestic convertible bonds. To deepen this market, the committee has suggested short tenors, reference benchmark interest rates and raising the limit for foreign institutional investors to $5 billion.
Between April 2000 and March 2007, Indian companies mobilised Rs 375,500 crore through foreign borrowings.
All companies intending to list on overseas stock exchanges in the US or Europe will need to issue at least a third of their enhanced equity in the domestic market to maintain the proportion between local and foreign floating stock. Further, the price will be derived from the local market and not the overseas one.
The committee’s recommendations will be vetted by the Securities and Exchange Board of India.
If a company wants dual listing in India and abroad, the committee is of the view that Indian allotment should prevail. This, in effect, means allotment to institutional investors should be proportionate as it is in India and not discretionary as in overseas bourses.
Expressing concern over the de-listing of many multinational companies that do substantial business in India, the committee feels the government could explore avenues to encourage them consider Indian depository receipts.