| The department of company affairs (DCA) has brought out a notification laying down the guidelines for the issue of Indian Depository Receipts (IDRs) by companies incorporated abroad that want to raise money from Indian markets.
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| The notification says only companies with a minimum paid-up capital and free reserves of $100 million and an annual turnover of $500 million for three years prior to the issue will be eligible.
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| The company wishing to issue IDRs should have a 5-year profit track record, declaring 10 per cent dividend for the said period. The department has fixed the pre-issue debt-equity ratio at a maximum of 2:1.
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| The companies will also have to seek prior permission of the Securities and Exchange Board of India (Sebi) before issuing IDRs.
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| The IDR norms have also mandated a one-year lock-in period for the redemption of receipts by companies registered outside India, capping the issue size at 15 per cent of the company’s free reserves.
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| This means that no IDRs can be redeemed by the issuing company for at least one year after the scrip is listed on Indian stock exchanges.
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| For issues up to Rs 100 crore, an issue fee of 0.5 per cent of the issue value subject to a minimum of Rs 10 lakh will be charged. For an issue greater than Rs 100 crore, 0.25 per cent of the issue value for every additional unit of value of the issue will be charged.
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| The repatriation of proceeds from the issue of IDRs, their transfer and purchase will be governed by the Foreign Exchange Management Act, 1999. The notification specifies that the issue should be denominated in Indian rupees irrespective of the denomination of securities of the issuing company.
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| The norms have come after a long wait of three years. The proposal for allowing companies registered abroad to raise money via IDRs from domestic markets was first mooted in the Budget for 2001-02.
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| Any contravention of the rules will invite a penalty up to twice the amount of the issue for default not provided for in the Companies Act, 1956.
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| In addition, if the contravention is a continuing one, then a further fine up to Rs 5,000 a day will be imposed. |
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