SEBI enables two-way fungibility of IDRs
Holders of Indian Depository Receipts (IDRs) will now have an option to convert it into shares of the issuing company. The Securities and Exchange Board of India (SEBI) has issued detailed guidelines which will allow shareholders to convert their depository receipts into equity shares of the issuer company and vice-versa.
The issuer could provide exchangeability to IDR holders by converting IDRs into underlying shares; or converting IDRs into underlying shares and selling the underlying shares in the foreign market where the shares of the issuer are listed and providing the sale proceeds to the IDR holders.
Existing IDR issuers can follow the new framework, and have to provide the option of redemption/conversion within three months from the date of completing a year of listing.
What are IDRs?
- IDRs are generally instruments denominated in rupees and allow overseas companies to raise funds from the Indian market.
How this step would help India’s capital market?
- This move of allowing for two-way fungibility of IDRs will encourage greater foreign participation in the Indian capital market.
- So far only the UK-based banking major Standard Chartered PLC was listed as an IDR.