In the wake of economic liberalization in India, the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) (the Scheme) was notified by the Government of India in 1993 to allow Indian public companies to tap global investment pools by listings its equity linked (American and global depositary receipts (ADRs/GDRs)) and optionally convertible securities (foreign currency convertible bonds) on overseas exchanges. This scheme enabled various companies in the 90’s to raise funds from the international markets, particularly corporate entities in the internet sector such as Infosys Limited and Rediff.com India Limited. However, after 2000, and with the steady inflow of foreign capital into the Indian capital markets, the government over a period of time altered its stand of progressively liberalizing foreign funds raisings in order to provide a further fillip to the then ever swelling Indian capital markets. Finally, by a 2005 amendment to the Scheme, the Ministry of Finance disallowed unlisted Indian companies from accessing international capital markets unless they were already listed in India or was undertaking to list in India in parallel with its overseas listing. This move was intended to maintain regulatory control on these Indian companies and alongside help develop the domestic capital markets. Upon analysis of the declining performance of the Indian capital markets and the rising economic concerns in the past few years, the Ministry of Finance has been compelled to reconsider its position.
The conventional wisdom is that in order to raise funds from the capital markets, and in particular, from the equity markets, companies are require to demonstrate sustained growth, which will in turn result in an upward trend in its market capitalization. In the recent past, there has been a palpable decline in the amount of funds raised through Indian IPOs. From an aggregate of Rs.46,430.6 Crores raised from IPOs in the year ended March 31, 2011, the amount reduced to Rs.10,978 Crores for the year ended March 31, 2013. Further, market data has shown that out of 37 companies that listed their equity shares in the Indian bourses with price discovery using the “book