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Like Indian companies today float global depository receipts (GDRs) and American Depository Receipts (ADRs) and foreign investors are able to invest in them, resident Indian investors will be able to own stakes in foreign companies through IDRs they may issue in the Indian markets.
As per the RBI notification, IDRs will not have automatic fungibility – which means there cannot be interchangeability of IDRs and their underlying shares in Indian stock exchanges and overseas exchanges. Also, they will not be redeemable into underlying equity shares before the expiry of one-year period from the date of issue, said the central bank.
The proceeds of IDRs should be immediately repatriated outside India by the companies issuing such issues, the RBI said. The IDRs will be denominated in Indian rupees.
Though the concept of IDRs has been floated 3-4 years back, no overseas companies has been able to tap this route in the absence of clear-cut rules. Among foreign banks, Standard Chartered Bank is planning to raise funds through IDRs.
RBI said the FEMA Regulations would not be applicable to persons resident in India for investing in IDRs and subsequent transfer arising out of transaction on a recognised stock exchange in India.
In the case of funds raised through IDRs by financial/banking companies having presence in India, either through a branch or subsidiary, the approval of the sectoral regulators – RBI in this case, should be obtained before the issuance of IDRs.
“It is opening up one more avenue and globalising our capital market,” said ADM Chavali, general manager - treasury and resource management, Bank of Baroda.
“RBI may want to see how the new system evolves. Therefore, the regulator has set a specific time period when it can be converted into equity shares and the price at which they can be converted. It is an Indian equivalent of the ADRs and GDRs,” said Chavali.
Foreign Institutional Investors (FIIs) including SEBI approved sub-accounts of the FIIs, registered with SEBI and Non-Resident Indians (NRIs) can also invest, purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market. This is subject to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
Further, NRIs are allowed to invest in the IDRs out of funds held in their NRE / FCNR(B) account.
Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.
(with inputs from Manju AB)
 Limited.JPG)
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