detail about Indian depository reciept

1. Indian Depository Receipts

2. What is Indian Depository Receipt ?
.
.
• As per the definition given in the Companies (Issue of Indian
Depository Receipts) Rules, 2004, IDR is an instrument in the form
of a Depository Receipt created by the Indian depository in India
against the underlying equity shares of the issuing company.
.
• In an IDR, foreign companies would issue shares, to an Indian
Depository (say National Security Depository Limited – NSDL),
which would in turn issue depository receipts to investors in
India.
.
• The actual shares underlying the IDRs would be held by an
Overseas Custodian, which shall authorize the Indian Depository
to issue the IDRs.

3. What happened
before IDRs were introduced?
Go through a domestic mutual fund (MF) that invests its corpus abroad in a foreign fund, which
invests in international companies.
But MFs are directly affected by currency-exchange risk because your investments in Indian
rupees are converted into global currencies before they are deployed in the international
markets.
The Reserve Bank of India (RBI) allowed investments in international equity instruments up to
$200,000 (Rs 125 lacs).
However, it was necessary to have a demat account in the country in which you invest and a bank
account with funds in the same country’s currency.

4. Features of IDRs
•Foreign bank with branches in India
•Requires approval from Finance Ministry and has to be
registered with SEBI
Overseas Custodian
• IDR issue will require approval from SEBI and application
can be made for this purpose 90 days before the issue
opening date
Approvals for the issue
• These IDRs would be listed on stock exchanges in
India and would be freely transferable
Listing
• The issue during a particular year should not exceed 15%
of the paid up capital plus free reservesExtent of Issue
• IDRs would not be redeemable into underlying equity
shares before one year from date of issueRedemption
• IDRs would be denominated in Indian rupees,
irrespective of the denomination of underlying sharesDenomination

5. Why do you need an IDR?
• An IDR is meant to diversify your holdings across regions
to free you from a “region bias” or the risk of a portfolio
getting too concentrated in the home market.
• You need to study the firm’s financials before you buy its
IDR.
• However, since these IDRs are listed, bought and sold on
the Indian markets, the impact of global markets and
exchange-rate risks are reduced, though not totally
eliminated.

6. What is the security of the underlying
shares? Where will the receipts be
deposited?
.
• The underlying shares for IDRs will be deposited with an
overseas custodian who will hold the shares on behalf of
a domestic depository.
.
• The domestic depository will accordingly issue receipts
to investors in India. Investors will get an entry in their
Demat accounts reflecting their IDR holding.

7. How will IDRs be Issued?
Who can Participate?
..IDRs will be issued to Indian residents in the same way as
domestic shares are issued. NRIs can also participate in the
Issue
The issuer company will make a public offer in India, and
residents can bid the same way as they do for Indian shares.
Investors eligible to participate in an IDR issue are institutional
investors, including FIIs — but excluding insurance companies
and venture capital funds — retail investors and non-
Institutional Investors
Commercial banks may participate subject to approval from the
RBI

8. Parties Involved & their Roles
Parties
Involved
Issuer
Company
Domestic
Depository
Overseas
Custodian
Registrar &
Transfer
(R&T) Agent
• Intends to raise capital in India
• Must be listed in its home country
• Indian entity appointed by the issuer
company and registered as a custodian of
securities with SEBI
• Issues IDRs and serves as the trustee on
behalf of the shareholders
• Holder of equity shares on behalf of the
Domestic depository
• Appointed by Domestic Depository
• Provides services to the issuer company, the
Domestic Depository and the IDR holders
• Services - Keeping records of the IDR holders,
coordinating corporate actions, and handling
investor grievances

9. Eligibility Criteria
CAPITAL
Paid up capital and
free reserve of at
least $100 million
PROFITABILITY
Profitable in the last 5
years and paid
dividends of at least
10% each year during
this period
DEBT-EQUITY RATIO
The pre-issue debt
equity ratio should not
be more than 2:1
TURNOVER
Average turnover of
$500 million during
the last 3 years

10. Is there a Currency Risk?
• In theory, the price of the underlying share of the international
firm at the foreign exchange and the exchange rate would play a
role in determining the price of the IDR on the domestic exchange.
• But, in practice, this may not play out fully because the IDR would
need to be bought and sold in Indian rupees and its price
discovery would happen based on demand and supply, just like
any other equity share.
• Dividends declared by the firm will be distributed in foreign
currency and this would be then converted to Indian rupees at
prevailing exchange rates.

11. What are the Benefits that Indian
Investors can look forward to?
Indian individual investors have restrictions on holding shares in
foreign companies, but IDR gives Indian residents a chance to invest
in a listed foreign entity.
No resident individual can hold more than $200,000 worth of
foreign securities, including shares, as per foreign exchange
regulations. However, this will not be applicable for IDR.
Additional key requisites such as demat account outside India to hold foreign
securities, KYC with foreign broker, foreign bank account to hold funds are too
cumbersome for most investors. These troubles are completely avoided in
holding IDRs.

12. Will Indian Investors get Equal
Rights as Shareholders?
Indian investors have
equivalent rights as
shareholders
They can vote on EGM
resolutions through the
overseas custodian.
They can’t attend
AGMs.
Whatever benefits
accrue to the shares, by
way of dividend, rights,
splits or bonuses will be
passed on to the IDR
holders also, to the
extent permissible under
Indian law

13. Can IDRs be Converted?
IDR holders will have to wait for a year after issue before they can demand that
their IDRs be converted into the underlying shares.
However this conversion is subject to certain conditions:
a) IDR Holders can convert IDRs into underlying equity shares
only with the prior approval of the RBI.
b) Upon such exchange, individual persons resident in India
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
c) Current regulations do not provide for exchange of equity
shares into IDRs after the initial issuance, i.e., reverse
fungibility is not allowed.

14. PROS
It provides enhanced
local branding and
target business
opportunities in India
It gives access to the
large Indian capital
pool and creates
opportunities for
future fund raising
Provides a currency
for any acquisition in
India which otherwise
would be possible only
through cash
CONS
Ambiguous
rationale behind
having an IDR
Too rigid
regulatory
frameworks
Possibility of
negative capital
flow

15. Disclosure & Investor Protection (DIP)
Guidelines

16. Part-I General requirements
A. ELIGIBILITY FOR ISSUE OF IDRs
No issuer shall make an issue IDRs unless:
i. It is listed in its home country;
ii. it has not been prohibited to issue securities by any Regulatory Body
iii. it has good track record with respect to compliance with securities market
regulations.
B. INVESTORS
i. Investments by Indian Companies in IDRs shall not exceed the investment
limits, if any, prescribed for them under applicable laws.
ii. Automatic fungibility of IDRs is not permitted.
iii. (In every issue of IDR – At least 50% of the IDRs issued shall be subscribed to
by QIBs; The balance 50% shall be available for subscription by non-
institutional investors (i.e., investors other than QIBs and retail individual
investors)and retail individual investors, including employees.

17. C. MINIMUM ISSUE SIZE:
The size of an IDR issue shall not be less than Rs.50 crores
D. MINIMUM SUBSCRIPTION:
(i) Following statement shall appear for non-underwritten IDR issues:
“If the issuing company does not receive the minimum subscription of 90 per
cent of the issued amount on the date of closure of the issue, the
issuing company shall forthwith refund the entire subscription amount
received. If the issuing company fails to refund the entire subscription amount
within 15 days from the date of the closure of the issue, it is liable to pay the
amount with interest to the subscribers at the rate of 15 per cent per annum
for the period of the delay.”
(ii) Following statement shall appear for underwritten IDR issues:
"If the issuing company does not receive the minimum subscription of 90 per
cent of the net offer to public including devolvement of Underwriters within 60
days from the date of closure of the issue, the issuing company shall forthwith
refund the entire subscription amount received with interest to the subscribers
at the rate of 15 per cent per annum for the period of the delay beyond 60
days.”

18. PART II - DISCLOSURES IN A PROSPECTUS FOR IDRs
A. GENERAL INSTRUCTIONS WITH RESPECT TO CONTENTS OF THE PROSPECTUS:
i. The contents of the prospectus include the financial statements of the
issuer company, its subsidiaries and associates which shall be in plain
English.
ii. The prospectus shall contain all material information which shall be true
and adequate so as to enable the investors to make informed decision on
the investments in the issue.
iii. The issuing company shall, through a Merchant Banker, file a prospectus
certified by two authorized signatories of the issuing company, one of whom
shall be a whole-time director and other the Chief Accounts Officer or the
Chief Financial Officer, stating the particulars of the resolution of the Board
or the shareholders by which it was approved, with the SEBI and Registrar of
Companies, New Delhi, before such issue.

19. B. THE ISSUE
Summary of the terms of offer shall be incorporated, including:
i. Offer and Listing Details
ii. Plan of Distribution
iii. Markets
iv. Selling Shareholders, if any
v. Dilution
vi. Expenses of the Issue
C. FORWARD LOOKING STATEMENTS
A paragraph on the statements that are forward looking statements and not
matters of historical facts shall be incorporated. A statement on the
sources of data used in the prospectus and their accuracy shall also be
incorporated on whether these have been independently verified

20. D. OBJECTS OF THE ISSUE / USE OF PROCEEDS
The following shall be disclosed:
i. purpose of the issue;
ii. break-up of the cost of project for which the money is raised through the IDR
issue
iii. the means of financing such project; and
iv. proposed deployment status of the proceeds at each stage of the project.
E. CAPITAL STRUCTURE
i. Authorized, issued, subscribed and paid up capital (Number of instruments,
description, aggregate nominal value).
ii. Size of present issue.
iii. Paid-up Capital:
- before the issue;
- after the issue (if the IDR issue involves issue of fresh equity shares); and
- share premium account (before and after the issue)
iv. Detailed notes to Capital Structure
Capital Structure shall also contain details regarding holdings of major shareholders
i.e., the person or persons who are in over-all control of the company.

21. F. FINANCIAL INFORMATION
Prospectus shall contain the following:
(a). Report of Auditors on the Financial Statements
(b) Balance Sheets
(c) Statements of Income
(d) Schedules to Accounts
(e) Statements of Changes in Stockholders’ Equity
(f) Statements of Cash Flows
(g) Statement of Accounting Policies
(h) Notes to Financial Statements
(i) Statement Relating to Subsidiary Companies (in case of
unconsolidated financial statements)
(j) Related Party transactions
(k) Liquidity and Capital Resources.
**The financial information in the prospectus shall be disclosed in the issuing
company’s functional currency/reporting currency/national currency and the reporting
currency shall be restricted to Sterling Pound/Euro/Yen/US Dollar.

22. G. DESCRIPTION OF THE INDIAN DEPOSITORY RECEIPTS AND RIGHTS OF IDR
HOLDERS
i. Brief description of the Indian Depository Receipts
ii. Dividends, Other Distributions and Rights of IDR holders
iii. Voting rights and their manner of exercise by IDR holders, if any.
iv. Record dates and how the same will be disclosed.
v. Reports and other communication to which the IDR holders will be
entitled.
vi. Conversion procedure of IDRs into shares
vii. Governing Law regarding various aspects of IDRs and transactions
therein.

23. Some Other Important Content in the prospectus:
Other
Information
Dividends
Details Of
The Issuer
Management
General
Details About
The Issue
Industry And
Business
Overview

24. IDR Market Statistics
Statistic Description
Number of IDRs 1
Company Standard Chartered (STAN)
Listing Date June 1, 2010
Number of Shares Offered 240,000,000
Issue Size Rs. 2,486.35 Crore
Issue Price Rs. 104
Listing at BSE, NSE
Market Lot 200 Shares
Minimum Order Quantity 200 Shares
Issue Type Book Building

25. • It is clear that India’s plan to replicate the ADR and GDR success story has failed to
take off due to the differences in capital market regulations, quixotic policies, and
their perfunctory implementation.
• This also throws focus on the lack of depth and breadth of our equity markets, and
the lack of risk appetite of investors for foreign assets. As of now, very few
companies will like to raise funds from India, and establish their Indian association, as
SCB PLC did, and gain the first-mover advantage.
• With the cost of compliance increasing in the US and other global markets, India can
be an alluring option for international companies to raise funds at a lower cost and
with less rigorous compliance.
• While the regulatory framework on IDRs has been modified several times over to
meet the needs of issuers, the policy jinx needs to be broken to make the SCB IDR a
success story.