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Reliance seeks nod to divest thru GDRs/ADRs

Shaji Vikraman

Hema Ramakrishnan

NEW DELHI, Oct. 22

THE Reliance group has sought the approval of the Finance Ministry to disinvest its shares abroad through issuance of either global depository receipts (GDRs) or American depository receipts (ADRs).

The approval hinges on a policy change by the Finance Ministry which will permit private corporates to disinvest their shares in the overseas markets. Under the existing guidelines, Indian private corporates can issue ADRs or GDRs only in the form of fre sh issue of shares.

Tax concessions can be availed of by overseas investors only in the case of secondary issue of shares by private corporates.

The exceptions are State-owned or public sector companies which are allowed to go in for an overseas equity float by disinvesting the shares held by the Government. Income earned by investors by way of interest or dividends or long-term capital gains on transfer of shares will attract a concessional tax rate of 10 per cent, according to the Income-Tax Act.

Government officials said that the company's proposal has been referred by the Department of Economic Affairs (DEA) to the Revenue Department for its views. One view within the Finance Ministry is that the Government is empowered to carry out a policy ch ange through a notification, based on the guidelines on GDRs and foreign currency convertible bonds (FCCBs) issued in 1993.

Issuance of ADRs and GDRs is governed by this. The Revenue Department's view has been sought to ascertain whether any amendments would have to be made to the I-T Act to extend the concessional tax rate on the income earned by investors subscribing to sha res disinvested by Indian companies through ADRs and GDRs.

Earlier, the High-Level Committee on Capital Markets (HLC) had given an in-principle approval for the proposal to allow Indian corporates to disinvest shares abroad. However, caveats were added. One -- the issuer would have to repatriate the proceeds imm ediately. And two -- other shareholders in India would have to be given an opportunity to participate in the process on a proportionate basis.

There is a possibility that such disinvestment abroad may be restricted only to unloading of shares by companies in their subsidiaries, instead of allowing promoters to make a killing.

Investment bankers say that there are close to half a dozen

companies which would be candidates besides RIL for disinvesting shares of their subsidiaries abroad. This would include the Tata group. The argument for adopting this route is that they stand to gain thanks to higher realisation from institutional inves tors abroad. The Government also gains in the form of capital inflows.