Sebi moots 20% reservation for retail investors in IDR redemptions

Market regulator Securities and Exchange Board of India (Sebi) has said reservation of 20 per cent 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 per cent of the IDRs originally issued is permitted. 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 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 a 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 costs together shall not exceed five per cent of the sale proceeds," Sebi said.