Global Depository Receipts (GDRs) and Public development

Foreign portfolio investment has also taken place through EURO issues of Global Depository Receipts and foreign currency convertible bonds (FCCBs), In 1995-1996 upto December the no of Euro issues had declined by 86% compared to the corresponding period of 1994-1995, from 28 to 4 . The amount raised by Euro issues shows a similar decline of 88% from and $1891 millions to $221million.

Policy developments:

Major policy changes have been effected with a view to ensuring that investment flows are channeled in a manner consistent with overall macro economics requirements.

(i) With a considerable improvement in the external payment position and the level of reserves, it was considered recessary to follow a restrictive policy towards FCCBs as they constitute a part of the country's external debt till their conversion into equity. As per the guidelines issued in May 1994 for Euro issues companies were allowed to issue FCCBs only on merits as a part of the external debt restructuring programme which was intended to lengthen maturity and soften terms.

(ii) Policy guidelines for accessing international markets through GDRs were also revamped with a view to ensuring that a large number of companies get the benefits of mobilizing funds through the issue of GDRs route, it was decided to allow.

- Allow one issue per company in a financial year.

- Two successive issues only if there is minimum gap of 12 months.

- Not more than 2 issue for any group of companies in a financial year.

(iii) Under the automatic approval scheme for foreign investment, new guidelines were issued for determining issue price of preferential shares issued to foreign investors to increase their stake upto 51% in the business of any Indian company engaged in the high priority industries. With the objective of preventing a few shareholders from getting substantial and undue enrichment and unwarned gains to ensure higher foreign equity flows, and to make both investment and disinvestment Market relates, it was decided with effect from August 1994 that preferential of shares by company's must be at market related price applicable to all foreign investment proposal.

(iv) In respect of applicationa from companys for preferential allotment of FIIs approvate were to be granted subject to the conditions that aggregate investment by FIIs, WRIs, OCBs, should not exceed 24% of the equity of the company.

(V) As a part of the general guidelines, share alloted to FIIs on a preferential basis or acquired by conversion or otherwise of warrants /FCDs/PCDs etc would remain locked in for a period of 5 years from the data of their alloment.

(vi) Indian companies engaged in or proposed to engage in housing real development were allowed to issue shares/CDs to NRIs upto 100% of the new issue in repatriation basis.

(vii) With a view to providing further incentives to NRIs/OCBs to invest in domestic mutual funds, they were permitted to invest on repatriation basis also. As a new policy measure, such investments were also permitted to be made through secondary market.