Indian Depository Receipt

RUPA SINGH
ROLL NO - 12
 IDR: Introduction

 An IDR is an instrument denominated in Indian Rupees

in the form of a depository receipt created by a Domestic
Depository (custodian of securities registered with the
Securities and Exchange Board of India) against the
underlying equity of issuing company to enable foreign
companies to raise funds from the Indian securities
Markets.

 In simple terms, an IDR is a receipt, declaring ownership

of shares of a foreign company. These receipts can be
listed in India and traded in Indian rupees.
Structure of IDR
 Principal Participants & their Roles

Issuer Company: The issuer company must be incorporated outside India and listed in
the country of its incorporation.

Domestic Depository: It will issue IDRs representing the underlying equity shares of
the issuer company to investors in India. It must be an Indian entity appointed by the
issuer company and registered as a custodian of securities with SEBI. It acts as a trustee
on behalf of the IDR holders and its rights and obligations will be as specified in the
Deposit Agreement signed between the issuer company and the Domestic Depository.

Overseas Custodian: The issuer company issues equity shares to the Overseas
Custodian who holds them on behalf of the Domestic Depository and on basis of which
the Domestic Depository issues IDRs in India. It is a foreign entity appointed by the
Domestic Depository.

The Registrar and Transfer Agent ("R&T Agent"): R&T Agent provides services to
the issuer company, the Domestic Depository and the IDR holders in India primarily
being registration and transfer of IDRs in India. Examples of services include keeping
records of the IDR holders, coordinating corporate actions and handling investor
grievances.
 Eligibility criteria for foreign issuing company

 Pre‐issue paid‐up capital and free reserves of at least US$ 50 million

and have a minimum average market capitalization (during the last
3 years) in its parent country of at least US$ 100 million;

 A continuous trading record or history on a stock exchange in its

parent country for at least three immediately preceding years;

 A track record of distributable profits for at least three out of

immediately preceding five years;

 Listed in its home country and not been prohibited to issue

securities by any Regulatory Body and has a good track record with
respect to compliance with securities market regulations.

The size of an IDR issue shall not be less than Rs. 50 crores
 IDR Issue Process

 IDRs will be issued to investors in India through a public issue

in the same way as equity shares are issued in an IPO in India.

 A Draft Red Herring Prospectus ("DRHP") would be prepared

by the Company and the Book Running Lead Managers
("BRLMs") which would be examined by SEBI. The same
would be available on the websites of SEBI and the BRLMs.

 After clearance from SEBI, issue dates will be announced and a

Red Herring Prospectus ("RHP") will be submitted to
Registrar of Companies (RoC) and the same will be available
on the websites of SEBI, the BRLMs and the Stock Exchanges.
Cont..

 The price band will be announced prior to the issue opening date
and investors can apply for IDRs by completing an application
form during the issue period as in the case of an IPO in India.

 There will be a book building process and the issue price will be
finalized; once the issue price has been finalized, IDRs will be
credited into the dematerialized accounts of the IDR holders as
for any IPO in India.

 Once the issuer company gets listing and trading approval, the
IDRs will trade on the Stock Exchanges as in the case of an IPO
in India.
 Reservations in IDR issues

At least 50% of the Issue is to be allocated to

Qualified Institutional Buyers(QIBs)

30% of the issue to the retail individual investors and

balance 20% of the issue to non-institutional
investors and employees.
 Minimum and maximum limits of bids

 Retail Investors: Minimum of Rs 20,000 and maximum of

Rs 100,000.

 NII: Non-institutional investors have to invest above Rs

100,000 up to the issue size.

 QIBs: Institutional investors above Rs100,000 up to the

issue size.

 No IDR holder can individually own more than 5% of the

total IDRs issued except for QIBs which can hold up to 15%
of the IDR issued.
 Standard Chartered IDR

30th March, 2010 Standard Chartered Plc

(`STANCHART’) filed its draft Red Herring Prospectus
with SEBI

The Issue had a 2.01 times subscription level.

Issue was made of 240m IDRs with denomination of 104

INR, end use of the fund would be to support growth
across the business of the company internationally

Trading for this IDR has been started from June 11, 2010.
Cont…

For Particular this issue 1 IDR stands for 1/10th of

share and any dividend given by the company will be
apportioned according to the IDR holding

The same is true for Rights Issue also.

Voting rights will also work as per stocks, there is no

significance of 1/10th vote, if you have 10 IDRs it will
be accounted for 1 vote and so on.
 Fungibility

DRs holders can convert IDRs into underlying equity

shares only after one year and with the prior
approval of the RBI. Upon such conversion, resident
individual investors are allowed to hold the
underlying equity shares only for the purpose of sale
within a period of 30 days from the said conversion.

Conversion of equity shares into IDRs is not

permitted under current regulations i.e. reverse
fungibility is not allowed.
 Tax and IDR

 Dividend tax will be assessed at 30%(Plus 10% surcharge) on all

dividend you get from these IDRs where other common stock’s
dividends don’t attract this tax

 Short term capital gains – Stocks its charged as 15% plus surcharge
where for IDR short term capital gains will be charged by 30%

 Long Term Capital gains - there is no such tax on regular stocks, where
on IDR it attracts 20% tax on long term capital gains and 3% surcharge
on IDRs

 Above points though give a direct hit to IDR in comparison to other

stocks however Direct Tax Code implementation, which is expected in
next year will change lot of things.
 IDR – Company benefits

Companies could have different objectives for listing in India

like:

 It provides enhanced local branding and target business

opportunities in India.

 It gives access to the large Indian capital pool and creates

avenues for future fund raising.

 It provides a currency for any acquisition in India which

otherwise would be possible only through cash.
 Benefits for Investors

An IDR is a mode for Indian investors to own an

interest in foreign companies, paid for in Indian
rupees.

IDRs allow an investor to have an exposure to

overseas companies in the same manner you invest
in Indian companies.

The US$200,000 limit is not applicable for an

investment in IDRs.
 Conclusion

IDRs are a significant step towards the globalization of the

Indian security markets which would also be a potential
benefit for the domestic investors in India. There remain
some challenges.  However, if the Standard Chartered IDR
is successful, it may herald a new trend of international
companies listing IDRs in India.  In the future, India may
become a source for capital for international issuers.
Thank You!!