The Hindu : Use of ECB, ADR, GDR proceeds permitted

Online edition of India's National Newspaper
Friday, Jul 05, 2002

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Use of ECB, ADR, GDR proceeds permitted

By Our Special Correspondent

NEW DELHI JULY 4. The Government today announced that external commercial borrowing (ECB) proceeds can be used in the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public. This has been done considering that, technically speaking, it was not the prohibited end-use of ECB being an non-stock exchange transaction. The step is in conformity with the Government's policy to promote the disinvestment programme of public sector enterprise (PSE) shares.

The existing ECB guidelines prescribe that under no circumstances ECB proceeds would be utilised for investment in stock market and speculation in real estate.

The Government has received suggestions for permitting use of ECB proceeds to acquire shares of PSEs under the disinvestment programme. It was felt that in view of impending large scale disinvestment of PSE stocks in the near future, Indian bidders would be required to mobilise huge sums of money for purchasing such stocks. The domestic bidders might suffer from the structural constraints of restrictions of bank financing to capital market and exposure limit to borrowers. The view was that the prohibition not only puts restrictions on Indian bidders in the first stage offer to the Government, but also to fund the second stage of mandatory public offer under SEBI regulations.

PTI reports:

The Reserve Bank of India has also permitted corporates to utilise the proceeds of American Depository Receipt (ADR) and Global Depository Receipt (GDR) issues for funding PSE acquisition.

The RBI has also liberalised norms allowing banks to treat advances for financing PSE buyouts as falling outside the stipulated 5 per cent cap on stock market exposures.

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