Sebi clips voting rights of ADRs & GDRs holders

Move is a part of corporate governance

A decision to this effect was taken by Sebi after the proposal was discussed in the board meeting last week.  Sources in the know said Sebi took a view that voting rights of ADR/GDR holders should not be transferred to Indian managements – most of them, if not all, put clauses in ‘terms of issue’ almost unilaterally.

Even as this practice has been followed for many years, wherein boards of management of Indian companies issuing ADR/GDR virtually end up getting the voting rights from the depository banks, Sebi has now decided to change the practice altogether.
As such, Sebi said  it would write to the finance ministry and the Reserve Bank of India for changes in the law.    If Sebi had its way, it could be a major change for India Inc, especially those issuing ADRs and GDRs. 

As per the law, the depository bank is registered and the shareholder has the voting right, while the eventual holder of the depository receipt does not have voting rights.  
In practice, however, while the issuance was happening, there was an agreement between the issuer and the depository bank, which gave 100 per cent control on the Indian board or the management in many cases to exercise the votes.  Simply put, the depository bank was actually being deprived of its rights to vote in all such ADR/GDR issuances.

This issue came into fore in September last when the Bharti-MTN deal happened, to which the regulator stepped in and changed the law to say that wherever a voting right has been given in any manner or is exercised would attract takeover code provisions.
Going a step forward, Sebi feels: “good governance demands that such unilateral agreements should not be entered into. You cannot take away the right of a depository bank to exercise its vote the way it wants to do.”
Nominees of both the finance ministry and the RBI in the Sebi Board opine that the regulator should put up a formal note to the government and the banking regulator, because RBI deals with bank issuances and get an amendment to the law which will prevent any such agreements in the future.
DH News Service