INDIAN DEPOSITORY RECEIPTS

An Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities Markets.

 The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares (like bonus, dividends etc) would accrue to the depository receipt holders in India

 Standard Chartered PLC became the first global company to file for an issue of Indian depository receipts in India. Rules (principal rules) were operationalised by the Securities and Exchange Board of India(SEBI)the Indian markets regulator in 2006. Operation instructions under the Foreign Exchange Management Act were issued by the Reserve Bank of India on July 22, 2009. The SEBI has been notifying amendments to these guidelines from time to time.

ELIGIBILITIES FOR ISSUING IDR

It has net tangible assets of at least Indian Rupee three core in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets It has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years

 It has a net worth of at least one core in each of the preceding three full years The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year

 the issuing company is listed in its home country the issuing company is not prohibited to issue securities by any regulatory body the issuing company has track record of compliance with securities market regulations in its home country

PROCESS OF ISSUING IDR

The process is similar to an IPO where a draft prospectus is filed with the SEBI. The minimum issue size is $500 million (around Rs 2,250 core). Shares underlying IDRs will be deposited with an overseas custodian who will hold share s on behalf of a domestic depository. IDRs will be issued through a public offer in India in the demat form and will be listed on Indian exchanges. Trading and settlement will be similar to those of Indian shares

BENEFIT TO KEY HOLDERS

To Foreign companies: A company which has significant business in India can increase its value through IDRs by breaking down market segmentations, reaching trapped pools of liquidity, achieving global benchmark valuation, accessing international shareholder base and improving its brand's presence through global visibility

To Investors: IDRs can lead to better portfolio management and diversification for investors by giving them a chance to buy into the stocks of reputed companies abroad. To Employees: Foreign companies that do not have a listed subsidiary in India can give employee stock options (ESOPs) to the employees of their Indian subsidiaries through the IDR route. This will enable the local employees to participate in the parent companies success.

To Regulator: IDRs will lead to more liquid capital markets and a continuous improvement in regulatory environment, thereby increasing transactional revenues for the regulator