Govt amends rules to allow IDR conversion into shares

The government has amended the rules governing Indian Depository Receipts issued by foreign companies, after financial regulators RBI and SEBI allowed part-conversion of securities into equity shares by investors. The amendment, notified by the ministry of corporate affairs in the Companies [Issue of Indian Depository Receipts] Rules, have come into effect from 1 October, as per a ministry notification. As per the MCA notification, ‘A holder of IDRs may transfer the IDRs or, ask the domestic depository to redeem them or, any person may seek re-issuance of IDRs by conversion of underlying equity shares,’ subject to the provisions of Foreign Exchange Management Act and SEBI rules at the time.

Banking regulator RBI and capital markets watchdog SEBI had approved partial conversion of IDRs into equity shares late in August, while capping the funds to be raised through IDRs at USD 5 billion. The move is expected to help in attracting foreign entities to list their IDRs on domestic bourses. ‘... to retain the domestic liquidity, it is decided to allow partial fungibility of IDRs [i.e. redemption/ conversion of IDRs into underlying equity shares] in a financial year to the extent of 25 per cent of the IDRs originally issued,’ SEBI had said in its circular on 28 August. In 2012-13 Budget, the government had proposed to allow two-way fungibility of IDRs to encourage greater foreign participation in the Indian capital market.