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Friday, Sep 02, 2005

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New norms to check misuse of ADR/GDR funds: Ministry

Our Bureau

New Delhi , Sept. 1

THERE'S a growing suspicion that promoters of `dubious' entities are using American Depository Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds to plough back their tainted money held abroad into the country, said the Finance Ministry. That's why the Ministry had announced restrictions on floating such instruments on Wednesday.

"We were witnessing that even vague companies that were not doing well were raising a few million dollars through ADR/GDRs. This was making us suspicious that they were bringing back their own money lying abroad through this route," a senior Finance Ministry official said on Thursday. However, he refused to get into the specifics of such companies.

The Ministry has amended the norms on ADR/GDR/FCCBs. It is now mandatory for unlisted companies that have already raised money through these instruments to list in the domestic stock market either within three years of such an issue or after showing profits any time beginning 2005-06.

Unlisted entities, which are planning to raise money through these instruments, have to go in for prior or simultaneous listing. The officials said that the stipulation on pricing of these issues for listed companies has been detailed to protect the interests of small investors.

There was a mention of voting rights of banking companies (that have raised ADR/GDRs) being as per RBI norms, because certain banks were using the route to violate the regulatory stipulations, they added.

"Some banks have entered into contracts with the custodians of the GDR/ADR that they would have to vote along with the management on all issues. This leads to a violation of the RBI thresholds of 5 per cent and 10 per cent voting rights, since the custodian often holds a higher percentage of underlying shares," an official explained. He said that the corporate governance norms in the country are not yet strong enough to check such a violation.

Inflows through ADR/GDR route: The Finance Ministry has projected inflows of $4.5 billion through the ADR/GDR/FCCB route during the current fiscal

This would be a substantial jump over the total inflows of around $2.5 billion during 2004-05, according to a Finance Ministry official.

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