Indian Depository Receipts
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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