Enabling partial two-way fungibility of Indian Depository Receipts (IDRs), the Securities and Exchange Board of India (SEBI) on Friday issued detailed guidelines allowing shareholders to convert their depository receipts into equity shares of the issuer company and vice-versa.
IDRs are generally instruments denominated in rupees and allow overseas companies to raise funds from the Indian market.
It stipulated that IDRs would be redeemable into underlying equity shares after completion of one year period from the date of listing them and the issuer will provide two-way fungibility of IDRs.
This move is expected to attract more foreign companies to be listed on Indian bourses.
So far only the UK-based banking major Standard Chartered PLC was listed as an IDR.
“In order to encourage more number of foreign companies to issue IDRs in the Indian market and also to enable the investors to take informed investment decision, it has been decided to provide a detailed roadmap and guidelines for the future IDR issuances as well as for the existing listed IDRs,” SEBI said in a notification.
SEBI said that IDR fungibility would be provided on a continuous basis.
The issuer could provide fungibility to IDR holders by converting IDRs into underlying shares; or converting IDRs into underlying shares and selling the underlying shares in the foreign market where the shares of the issuer are listed and providing the sale proceeds to the IDR holders.
Total number of IDRs available for fungibility during one fungibility window would be fixed before the opening of the window.
Fungibility window for this purpose refers to the time period during which IDR holders can apply for conversion of IDRs into underlying equity shares.
A reservation of 20 per cent of the IDRs made available for redemption / conversion into underlying equity shares would be provided to retail investors.
In case of option of converting IDRs into underlying shares and providing the sale proceeds to the IDR holders, the issuer shall disclose the range of fixed / variable costs in percentage terms upfront and all the cost together shall not exceed 5 per cent of the sale proceeds, SEBI said.
PTI reports:
In the 2012-13 budget, the government had proposed to allow two-way fungibility of IDRs to encourage greater foreign participation in the Indian capital market. SEBI said the IDR fungibility would be available at least once every quarter, and the window would be open for at least seven days.
Existing IDR issuers can follow the new framework, and have to provide the option of redemption/conversion within three months from the date of completing a year of listing.
All the IDRs applied for conversion into equity shares would be transferred to redemption account at the time of application and in case of unsuccessful bids the balance would be transferred back to the applicant’s account.
According to SEBI, existing issuers would provide the option of redemption/conversion within three months from anniversary of the date of listing of their IDRs.
