Sebi announces IDR rights norms

The Securities and Exchange Board of India (Sebi) has amended capital raising and disclosure norms, allowing issuers of Indian Depository Receipts (IDRs) to launch a rights issue. Also, merchant bankers have been directed to disclose the performance of their past issues as part of the due diligence certificate.

According to Sebi, an IDR issuer will be allowed to come out with a rights issue after making an application to all exchanges where the IDRs are listed, and if there is no breach of ongoing material obligations under the IDR Listing Agreement.

IDRs are shares issued by foreign companies and are listed on the Indian exchanges. It basically gives investors an opportunity to own a share of a foreign company.

Currently, Standard Chartered Plc, which is listed on London Stock Exchange and Hong Kong Stock Exchange, is the only entity that has listed its IDR in India. The global banking major came out with its IDR issue in May 2010 and was listed on the Bombay Stock Exchange and the National Stock Exchange in June 2010.

According to Sebi, an IDR holder can also renounce the rights in favour of any other person if the home country of the issuer company does not have any such restrictions. Further, the issue can be cleared on a fast-track basis if the document has been filed and reviewed by the home country regulator and there are no pending show-cause notices or prosecution proceedings against the promoters or whole time directors.

The issuer also should have redressed at least 95 per cent of the complaints received from IDR holders before the end of three months immediately preceding the month of date of filing the offer letter.

Meanwhile, investment bankers while managing public issues will now have to disclose the performance of other issues that they have managed in the past. Sebi, in the past, has said that merchant bankers need to disclose their track record, which will help the investor in taking better-informed investment decisions in the primary market. The investment banking fraternity has, however, not been too pleased with the regulator's concept.

Among other things, the regulator has laid down the format for the abridged prospectus and the disclosures to be included in the document. The General Information Document will include financial data, summary of business, promoters and management history, risk factors and the basis of price, among other things.