Market regulator Sebi?s decision to give voting rights to holders of Global Depository Receipts (GDRs) or American Depository Receipts (ADRs) is a welcome move that will bring in transparency and propel shareholders? activism. The latest move will create a more level-playing field between equity shareholders and depository receipt holders?last year the market regulator placed depository receipts with voting rights under the ambit of takeover regulation. Under current norms, ADR/GDRs are treated as securities without voting rights, which means companies have the right to include any ?terms of issue? clauses that empower the management to exercise voting rights. ADRs or GDRs are securities listed on overseas stock exchanges representing shares of Indian companies and depository receipts allow investors to hold shares of companies that are listed in other countries. The sweeping change made by the market regulator was in the ambit for some time and will help check management gaining excessive control over the company and further strengthen corporate governance standards?something which became very pertinent after the Satyam creative accounting fraud. For all practical purposes, holders of ADRs/GDRs are shareholders and must be treated at par with domestic investors who have voting rights. Once the new norms are implemented, each holder of ADR/GDR can exercise his vote either in favour or against the management and each investor will have a say in the company?s functioning. Under the old system, there have been cases where the boards of issuer firms have directed the custodian bank, which holds the actual shares on behalf of ADR/GDR holders, to vote for them in a certain manner.
As Indian companies are increasingly taking the ADR/GDR route to raise money from the overseas market, this particular class of securities still has lots of anomalies that need to be addressed. The issue of depository receipts issuances came into limelight for the first time last year when Bharti Airtel was planning to divest a 36% stake in favour of South African telecom major MTN and its shareholders through GDR issues in return for a 49% stake in MTN. The Sebi amendment required depository receipts holders having voting rights to make an open offer to the shareholders of the target company upon crossing the threshold limit. Apart from Sebi?s new move, it is of utmost importance for non-promoters to take their voting rights seriously so that promoters do not call the shots at all times and ensure that the interest of retail shareholders are kept in mind.