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What is an Indian Depository Receipt (IDR)?
What
is Indian Depository Receipt (IDR)?
An IDR is a receipt, declaring ownership of shares of a foreign company. These
receipts can be listed in India and traded in rupees. Just like overseas
investors in the US-listed American Depository Receipts (ADRs) of Infosys and
Wipro get receipts against ownership of shares held by an Indian custodian, an
IDR is proof of ownership of foreign company’s shares. The IDRs are denominated
in Indian currency and are issued by a domestic depository and the underlying
equity shares are secured with a custodian. An Indian investor pays in Indian
rupees for the IDR whereas a shareholder in the issuer’s home country pays in
home currency.
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.
How will IDRs be
issued? Who can participate?
IDRs will be issued to Indian residents in the same way as domestic shares are
issued. 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. NRIs can also participate in the Issue. Commercial
banks may participate subject to approval from the RBI.
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. Besides, these 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.
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. Whatever benefits accrue to the
shares, by way of dividend, rights, splits or bonuses will be passed on to the
DR holders also, to the extent permissible under Indian law.
Can IDRs be
converted?
IDR holders will have to wait for an 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.
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