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Wednesday, March 17, 2010

IDR rules to be relaxed to boost participation

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) are likely to provide more flexibility to companies issuing Indian Depository Receipts (IDRs).

RBI is likely to allow banks to participate in these issues, something not allowed at present. In addition, a single institutional investor will be permitted to buy up to 15 per cent of the issue. The present ceiling is 5 per cent.

The moves are part of the review of the IDR policy, which has not been attractive enough for foreign companies. So far, only Standard Chartered Bank has evinced interest in taking the IDR route to raise capital.

In New Delhi, the bank’s South Asia CEO, Neeraj Swaroop, told reporters that Standard Chartered planned to raise between $500 million (around Rs 2,250 crore) and $1 billion (around Rs 4,500 crore) during the next quarter. “We remain keen to pursue our intent to have an IDR offering ... We are looking at quarter two (April-June 2010),” Swaroop said on the sidelines of an event on microfinance.

The offering was subject to market conditions and the bank would have to take a final decision, he said. The IDRs will be issued by parent entity Standard Chartered Plc.

Banks are among the latest set of investors to be allowed to invest in IDRs, with rules eased over the past few years to allow foreign institutional investors to participate. The Insurance Regulatory and Development Authority, however, does not allow insurers to invest in IDRs. In addition, Sebi has allowed 30 per cent reservation for retail investors.

Like American (or Global) Depository Receipts, through which Indian companies raise resources overseas, IDRs enable foreign companies to do the same in India.

The government notified the IDR rules in 2004. Sebi norms, too, have been in place for some time. However, the rules are still evolving, with a number of clarifications and relaxations during the course of Standard Chartered’s interaction with the regulatory agencies.

Investment banks said Standard Chartered’s issue might hold the key for more issues in the future, though most investors abroad would not tap the route to raise capital. “It will be part of the overall brand-building exercise. Companies which want to be seen as local players and not foreign companies will opt for this route,” said an executive with an international bank.

According to Sebi guidelines, only companies that are listed in their home market for at least three years and have been profitable for three of the preceding five years can issue IDRs.


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