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HCL Tech, Dr Reddy's Labs get ADR nod

Our Correspondent in New Delhi

The Cabinet Committee on Economic Affairs on Wednesday cleared the proposals of HCL Technologies and Dr Reddy's Laboratories Limited to offer rupee-denomiated equity shares through issue of American depository receipts aggregating $500 million and $200 million, respectively.

A government statement said HCL Technologies would have to ensure that the foreign equity in the company did not exceed 49 per cent after the share issue.

Dr Reddy's Laboratories is one of the largest pharma companies in India. It has subsidiaries/joint ventures in Hong Kong, Russia, the Netherlands, Singapore, Uzebekistan and Brazil. The company finances Dr Reddy's Research Foundation to undertake drug discovery and licences these discoveries to other companies.

The government said the shares could be sold by both HCL Technologies and Dr Reddy's Laboratories only to persons residing outside of India, including overseas Indians.

The proceeds of ADR offering will be used by Dr Reddy's for research and acquisitions. The company has six molecules that could be licensed for clinical trials and product development to the multinational corporations.

Since it requires significant amounts of time and money, the company intends to do the testing itself to the extent of establishing the clinical proof, which will benefit the company in terms of time and price.

The estimated cost of preliminary testing for each molecule will be in the range of $15 million and the company plans to develop and test six such new products in the next two years. In the interim period, the ADR proceeds will be used to minimise the company's debt.

After the proposed ADR issue the foreign holding in the company shall be within 20 per cent of the post-issue capital and shall be under approximately.

The proposals were considered by the Foreign Investment Promotion Board at its meeting held on August 3, 2000 The administrative ministry that is Department of Economic Affairs, ministry of finance supported the proposal subject to ADR/GDR guidelines.

Department of Chemicals and Petrochemicals also supported the proposal subject tot he conditions that foreign equity would not exceed 74 per cent of the total equity of the company after issue of ADRs.

Those include one that says that stock options linked to its ADRs will be permitted only for permanent employees of the company or its subsidiary in India or abroad.

"Post ADR issue, the foreign equity in the company will not exceed 49 per cent," the government said, adding that stock options denominated in rupees cannot be converted to ADR-linked options.

"The infusion of funds is required by the company to expand its activities and will be used for research and product development," the government statement said.

Those subscribing to Dr Reddy's Lab's ADRs can include expatriate Indians, foreign institutional investors and funds and foreign venture capitalists, it said.

Additional inputs: Agencies

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