Global Depository Receipts (GDR)/American Deposit Receipts (ADR)/Foreign Currency Convertible Bonds (FCCB): Foreign Investment through GDRs/ADRs/ FCCBs are treated as Foreign Direct Investment. Indian companies are allowed to raise equity capital in the international market through the issue of GDRs/ADRs/FCCBs. These are not subject to any ceilings on investment.

There is no restriction on the number of GDRs/ADRs/FCCBs to be floated by a company or a group of companies in a financial year. There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.

Foreign Investment through preference shares is treated as Foreign Direct Investment. Proposals are processed either under the Automatic route or FIPB as the case may be. The following guidelines apply to issue of such shares:

1) Foreign Investment in preference shares is considered as part of share capital and fall outside the purview of External Commercial Borrowings guidelines/ cap.

2) Preference shares are to be treated as Foreign Direct Equity for purposes of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. If the preference shares were structured without such a conversion option, they would fall outside the foreign direct equity cap.

3) Duration for conversion shall be as per the maximum limit prescribed under the Companies Act or what has been agreed to in the share holders’ agreement, whichever is less.

4) The dividend rate would not exceed the limit prescribed by the Ministry of Finance.

5) Issue of preference shares should conform to guidelines prescribed by the SEBI and RBI and other statutory requirements