The Hindu Business Line : SEBI nod necessary for IDR issue

COMPANIES looking to raise funds in the country through the Indian Depository Receipts (IDR) route may have to obtain the consent of the the Securities and Exchange Board of India (SEBI) before making an issue of IDR through a domestic depository.

This requirement is in variance to the earlier thinking of the Government, which was in favour of stipulating permission from the Department of Company Affairs (DCA) for the issuance of IDRs.

The IDR route would only be available to those companies that are incorporated outside India. Such companies, however, need not have established any place of business in the country.

IDR means any instrument in the form of depository receipt created by domestic depository in India against the underlying equity shares of the issuing company.

In yet another departure from an earlier thinking, the proposed rules on IDRs, which are soon to be prescribed by the Government, are silent on the need for listing the underlying shares of the IDRs in an international bourse to begin with. As per the proposed rules, an issuing company would only require listing of IDRs in recognised stock exchanges in India.

However, companies looking at issuance of IDRs through a domestic depository would have to satisfy stringent eligibility norms that are to be specified by the DCA in the proposed rules.

Besides, a pre-issue paid-up capital and free reserves of at least $ 100 million and an average turnover of $ 500 million during the three financial years preceding the issue, the issuing company should also have a pre-issue debt equity ratio of not more than 2:1.

Further, the issuing company should have been making profits for at least five years preceding the issue and declaring dividend of not less than 10 per cent each year for the said period. It should also fulfil the eligibility criteria laid down by SEBI from time-to-time.

The Government is also set to stipulate that the IDRs should not be redeemed into underlying equity shares before the expiry of the one-year period from the date of the issue of the IDRs. Further, the IDRs issued by any issuing company in any financial year should not exceed 15 per cent of its paid-up capital and free reserves.

An issuing company looking to get the nod of SEBI should pay non-refundable fee of $ 10,000 along with its application. On being granted the permission, an applicant would have to pay an issue fee of half a per cent of the issue value subject to minimum of Rs 10 lakh where the issue is up to Rs 100 crore.

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