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SEBI working on norms for IDR issues: Bajpai

Veena Venugopal
Virendra Verma

Mumbai, April 22

GUIDELINES for overseas corporates to raise funds through the Indian capital markets will be issued shortly. The Securities and Exchange Board of India (SEBI) is working on the operational aspects of the issue of Indian Depository Receipts (IDRs) by international companies.

IDRs are instruments in the form of depository receipts created by the domestic depository in India against the underlying equity shares of the issuing international company.

``We are working on allowing good quality corporates incorporated abroad to raise resources from the Indian capital market. This would give the Indian investor a chance to participate in the wealth being created internationally by these corporates,'' Mr. G N Bajpai, Chairman, SEBI told Business Line.

Earlier, the Department of Company Affairs (DCA) had announced that foreign companies that have 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 would be allowed to participate in the Indian stock markets.

The eligibility criteria laid down by the DCA are stringent and allow only robust global companies to avail of IDRs. The norms specify that the 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 during this period. The issuing company should also have a pre-issue debt equity ratio of not more than 2:1.

However, the rules on IDRs specify that the scrip need not necessarily be listed in an international stock exchange. Listing on any Indian stock exchange would suffice. Also, the issuing company must have an established place of business in India.

SEBI has to pre-approve the issue of IDRs. ``The moment securities have to be listed, that falls into SEBI's jurisdiction. Ours would be operational guidelines which would enable exchanges to take place on the trading platform," said Mr. Bajpai.

Once the SEBI guidelines are drafted, they would be reviewed by internal and external experts and the Primary Market Committee, before the final regulation is published.

The potential participants' interest in IDRs is very high.

The Government had earlier allowed multilateral agencies such as ADB, World Bank and IFC to raise funds in the Indian debt market.

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