The new norms will come into effect for approvals granted on Friday and after.

The notification says that all unlisted companies that fulfil the three-year track-record eligibility criteria may now approach the overseas market through either GDR or ADR issues. Currently, listed companies, which fulfil the three-year criteria, are allowed to approach the overseas market.

Analysts say the rationale behind allowing unlisted companies to approach the overseas market is to enable them to cash in on the boom there. The overseas markets are currently witnessing a boom, and there are scores of unlisted companies, especially in the software sector, which could greatly benefit from an infusion into their equities.

Freedom to approach the overseasmarkets will also enable companies to tap the booming overseas primary market at a time when the domestic market is almost dead and the secondary market extremely erratic. Analysts say the freedom also tackles the complaint by companies that no funds are coming their way either from the markets or from financial institutions and banks.

For approaching the market, concessions will be allowed to infrastructure companies if they have fulfiled the three-year track-record eligibility criteria. Companies in core areas like power generation, telecommunications, petroleum exploration and refining, ports, airports and roads will continue to avail themselves of relaxations for making GDRs, ADRs and foreign-currency convertible-bond issues (FCCBs).

The ministry has also removed all end-use restrictions on GDR and ADR issues. The ministry is of the opinion that as GDRs and ADRs are full-risk equity instruments with no repayment liability on the company, they need not have end-use restrictions.

Companies will,however, not be allowed to invest these funds in the stock markets and real estate. The 90-day ceiling has been withdrawn. Companies can now obtain permission from the ministry and make the issue whenever they feel is appropriate.

INSIGHT

Meaningful freedom

Access to capital markets abroad is important for unlisted companies for at least three reasons. One, with the domestic capital market less than enthusiastic about new issues, companies can now tap GDRs/ADRs on the strength of their fundamentals and thus finance expansion.

Two, companies with a strong brand image (Godrej Boyce or Eureka Forbes) which avoid equity expansion because the consequent dilution of control exposes them to takeover threats, can tap GDRs/ADRs which do not have voting rights.

And, finally public sector companies (Balco, for example or even Indian Airlines and Maruti Udyog for that matter) can seek funds abroad; theoretically it is possible for LIC and GIC to raise GDRs/ADRs without attracting the opprobrium ofdisinvestment.