The government has relaxed Indian depository receipt (IDR) rules in a bid to attract foreign companies to raise money in the Indian stock markets and list themselves on Indian exchanges, such as the Bombay Stock Exchange and National Stock Exchange. Mint had, on 14 March, reported the government’s intention to do.
IDRs are instruments similar to shares and will be listed on Indian stock exchanges. Though launched in 2004, IDRs did not find many takers because of stringent eligibility norms. The government has now eased these norms and, further, defined some of the key ones in terms of market capitalization and not revenues as was previously the case, according to a release from the ministry of corporate affairs on Tuesday.
Prithvi Haldea, managing director, Prime Database said market capitalisation was a more relevant criterion than turnover in the case of IDRs.
“We now have a more vibrant eligibility criterion and that should boost IDR issues,” he added. The government has also introduced another eligibility criterion that requires the company issuing the IDR to have a continuous trading record of three years preceding the issue, in its parent country.
The release said that companies issuing IDRs will be treated the same as domestic issuers in terms of their track record of profits. This means that IDR issuers would have had to make profits for three out of five years preceding the issue, and not all five years as previously required. Eligibility condition relating to disclosure norms have also be relaxed substantially.
The new norms also redefine the procedure involved in getting an approval from India’s stock market regulator Sebi prior to the IDR issue. They say that the regulator has to revert to the issuer within a certain time period.
Bobby Parikh, managing partner, financial markets, BMR & Associates, said that it would be difficult for IDRs to succeed despite the new norms. “India is still regarded as an emerging market. I think changed norms would only have a fringe advantage in the sense norms will now become more conducive for foreign companies to invest. But how many of them will actually come?,” he asked.
“Companies from lesser developed countries such a Bangladesh, Sri Lanka or Nepal may go in for IDR issues. However, I feel it is important for the government to market the instrument in these countries in order to attract investment,” said Sanjay Hedge executive director, PricewaterhouseCoopers.