The Hindu : Business : IDR rules relaxed for foreign firms

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Wednesday, Jul 18, 2007
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IDR rules relaxed for foreign firms

Limit enhanced for companies to raise money

SEBI will grant approval to the receipts
Overseas firms should have 3-year profit record

NEW DELHI: The Union Government on Tuesday eased rules relating to issue of Indian Depository Receipts (IDRs) by overseas firms, a move that will facilitate greater outflow of money from the domestic economy which is flush with foreign capital receipts.

The limit for an overseas firm to raise money from India in a financial year has been raised from 15 per cent of its paid-up capital and free reserves to 25 per cent of the post-issue number of equity shares.

The decision came just a day after the Prime Minister’s Economic Advisory Council raised concern over the excessive capital inflows into India and advised measures to facilitate the reverse flow of money.

IDRs are similar to American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) through which Indian firms raise money from overseas capital markets.

The new rules require that a foreign company wanting to raise money in India through IDRs should have a continuous trading record on a stock exchange in the parent country for at least three immediately preceding years.

However, the eligibility condition requiring the issuer to be making profits for at least five preceding years has been relaxed and the period has been shortened to three years.

According to the Amendment of the Companies (Issue of Indian Depository Receipts Rules), the net worth and market capitalisation ceilings have been provided as the eligibility conditions instead of net worth and turnover based ceilings.

“This change is with a view to facilitating better reflection of the financial sustainability/liquidity of the securities to be issued,” an official release said.

Earlier, the rules governing the IDR issue required the issuer to have a minimum rate of dividend for at least five years and a minimum of 2:1 debt-equity ratio. Both these conditions have been omitted. These conditions “cannot be applied across the board,” the official statement said.

The Securities and Exchange Board of India will now be required to grant approval to IDR applications in a time-bound manner.

Auditing requirements have also been liberalised to the extent that quarterly results will be subjected to limited reviews by the auditors of the issuing company and approved by its board of directors. The manner of publication of the quarterly results has been left to the listing conditions of the Indian stock exchanges within the SEBI framework.

The information relating to listing and trading record of the issuing company on all stock exchanges would be required to be disclosed in the offer document of the IDR.

India witnessed a surplus of $45 billion on capital account in 2006-07, primarily due to a near doubling of foreign direct investment and trebling of external commercial borrowing and other inflows.

After taking into account the current account deficit, the Reserve Bank of India was left with managing extra $37 billion in the last fiscal compared to $15 billion in the previous fiscal, posing new challenges to cope up with foreign inflows. — PTI

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