Foreign companies may soon find it more attractive to list their securities in the stock market here, with regulatory authorities mulling changes in certain features of issuing Indian Depository Receipts with an aim to make it more competitive in terms of costs and disclosures.
IDRs would allow foreign companies to raise funds from the local market directly. The market regulator — Sebi is currently reviewing feedback from companies interested in listing their IDRs in the country and based on this exercise, it could amend existing rules to make it more competitive for issuers, informed sources told PTI.
Positive feedback
Sources said the authorities are of a view that feedback received so far is “hugely positive”, but have sought some more “tweaking” in the rules. Sebi is also in touch with Ministry of Corporate Affairs in this regard, they added.
The guidelines related to issue of IDRs were instituted in 2004, but have failed to attract foreign companies due to the norms not being competitive enough, according to industry sources.
The IDR rules were amended late last year, where the minimum application value for the instrument was reduced to Rs 20,000 from Rs 2,00,000 earlier. At least 50 per cent of issue must be subscribed by institutional investors, or qualified institutional buyers (QIBs). Following amendments, the limit for an overseas firm to raise money from India in a financial year was raised from 15 per cent of its paid-up capital and free reserves to 25 per cent of the post-issue equity capital.
Financial stability
As per the norms, a foreign company seeking to raise funds through IDRs should have a continuous trading record on a stock exchange for at least three immediately preceding years.
However, 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. This change is with a view to facilitating better reflection of the financial sustainability/liquidity of the securities to be issued.
According to the Amendment of Companies (Issue of Indian Depository Receipts Rules), minimum net worth and market capitalisation have been provided as the eligibility conditions, instead of a level of net worth and turnover.
