The ministry of corporate affairs (earlier company affairs) is giving final touches to the amended version of the stringent IDR (Indian depository receipts) regulations that have taken the sheen off this new equity instrument designed exclusively for overseas companies.
IDRs are financial instruments that allow foreign companies to mobilise funds from the Indian markets by offering equity and getting listed on domestic bourses.
The instrument is similar to global depositary receipts (GDRs) and American depositary receipts (ADRs) that allow foreign companies to raise funds from the European and American markets. The ministry has cleared the final guidelines and sent it to the law ministry for appraisal.
According to Diwan Chand, director-investigation and inspection, ministry of company affairs, "These regulations will be in place very soon. We hope to get the law ministry's approval within a week and will notify it as soon as we get it in our official gazette."
Though the IDR norms came out first in 2004, not a single foreign company has shown interest in tapping the Indian markets as the norms were not competitive, said industry analysts.
Earlier, these norms made it mandatory for the issuing company to have a pre-issue paid-up capital and free reserves worth $100 million. If these amendments come into effect, the cap will be reduced to $50 million.
The existing norms required a company's turnover to be $500 million during the last three financial years. This provision will now be revised to stipulate the IDR issuing company to have a market capitalisation of only $100 million in its home country during the last three years.
Also, the company will have to comply with the eligibility norms laid by the Securities and Exchange Board of India (Sebi) as well as any observations or requirements pointed out by the capital market regulator.
The amendments also require number of underlying equity shares offered in a financial year through IDR offerings not to exceed 25 per cent of the post-issue number of equity shares of the company.
Says Nimesh Shah, managing Director, Fortune Financial Services, "It is a welcome move by the government to relax the norms which prohibited overseas companies to show interest in India. I do not think it will affect the competitiveness of the domestic firms. The market's reaction will be positive."
