Financial Daily from THE HINDU group of publications
Wednesday, Mar 03, 2004
Regulatory Bodies & Rulings
Corporate - Overseas Borrowings
Norms set for Indian Depository Receipts
Stiff entry: $100 m capital + reserves, $500 m average turnover
New Delhi , March 2
COMPANIES incorporated outside the country can now raise resources from the Indian capital market with the Government notifying norms for issue of Indian Depository Receipts (IDRs).
However, only strong overseas companies would be allowed through this route with the norms stipulating stiff entry barriers. Companies would have to have 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.
Besides, the issuing company should have been making profits for at least five years preceding the issue and should have declared a dividend of not less than 10 per cent each year for the said period. It should also fulfil the eligibility criteria laid down by Securities and Exchange Board of India (SEBI) from time-to-time. Besides, the issuing company should also have a pre-issue debt equity ratio of not more than 2:1.
All IDR issuances should have the prior nod of SEBI. The rules on IDRs, prescribed by the Government, do not require listing of the IDRs in a foreign bourse. As per the rules, an issuing company would only require listing of IDRs in recognised stock exchanges in India
IDR means any instrument in the form of depository receipt created by the domestic depository in India against the underlying equity shares of the issuing company. This has been stipulated in the Companies (Issue of Indian Depository Receipts) Rules, 2004.
The norms, notified by the Department of Company Affairs (DCA), however, make it mandatory for the issuing company to have an established place of business in India.
The rules also stipulate that IDRs should not be redeemed into underlying equity shares before the expiry of the one-year period from the issue date. 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 a 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. Further, where the issue value exceeds Rs 100 crore, every additional value of issue would be subject to a fee of 0.25 per cent of the issue value.
The norms also specify the procedure and redemption of IDRs. A resident holder of IDRs may transfer or ask the domestic depository to redeem the IDRs, subject to the provisions of the Foreign Exchange Management Act, 1999 and other laws for the time being in force.
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