20% reservations for retail investors in IDR redemptions

The move aims to to encourage more foreign companies to issue IDRs in Indian market

Market regulator Securities and Exchange Board of India (Sebi) has said reservations of 20% will have to be made for retail investors during conversion of Indian Depository Receipts (IDRs) into underlying shares.

The regulator today issued a detailed road map and framework for enabling partial two-way fungibility for listed and future IDR issuers to encourage more foreign companies to issue IDRs in the Indian market.

At present, Standard Chartered is the sole IDR listed in the Indian market.

Current regulations allow, partial fungibility of such instruments—in a financial year conversion to the extent of 25% of the IDRs originally issued.

Sebi has said after completion of one year from the date of issuance of such securities, the issuer can provide redemption and conversion of IDRs into underlying equity shares.

The issuer will have to, through advertisements in leading national dailies and through stock exchange notification, invite expression of interest from IDR holders at least one month before the implementation.

The issuer can either give the option of converting IDRs into underlying shares or IDRs into underlying shares and selling the underlying shares in the foreign market or both of these to the IDR holders.

Sebi has said the periodicity for fungibility will be at least once every quarter and the window should be open for the period of at least seven days.

Meanwhile, the issuer will have to fix the number of IDRs available for fungibility before the opening of the window. If there is a higher demand for fungibility, it should be satisfied on proportionate basis.

“In case of option of converting IDRs into underlying shares and providing the sale proceeds to the IDR holders, the issuer shall disclose the range of fixed/variable costs in percentage terms upfront and all the cost together shall not exceed 5% of the sale proceeds,” Sebi said in a circular.

The issuer on a continuous basis will have to disclose the available headroom and significant conversion/reconversion transactions. 'Headroom' is the the number of IDRs originally issued minus the number of IDRs outstanding.