Centre, RBI looking at IDR norms

Sahoo panel report of last year, which had many suggestions on overhauling this market, being dusted, though without a timeline

After liberalising the external commercial borrowing (ECB) regime for companies looking to raise debt abroad, the government and the Reserve Bank of India are having a look at easing the norms on Indian Depository Receipts (IDR) for foreign companies, Business Standard has learnt.

Sources aware of the matter said the likely base for such recommendations would be a report last year on IDRs from a panel chaired by Competition Commission of India (CCI) member M S Sahoo.

While American and Global Depository Receipts (ADRs/GDRs) allow Indian companies to access capital markets abroad, an IDR is a security a foreign company can list on Indian exchanges.

The 11-member Sahoo committee made many recommendations on overhauling the IDR market. These included a whole new class of securities called Bharat Depository Receipts (BhDRs) to replace IDRs.

Also, the widening of underlying securities to include all instruments accessible to an Indian investor, widening of end-usage rules for capital and non-capital purposes, clear taxation provisions and an easier regulatory framework, among others.

The report was on the back burner all this while and it was assumed the finance ministry wasn’t considering the suggestions. However, officials now say it is now being looked at as a starting point for any future announcements on IDR markets.

“We are looking to liberalise the IDR regime, to deepen the capital markets and attract more foreign companies to raise funds from the BSE and National Stock Exchange,” said an official. “The government and RBI have started work on this issue. The Sahoo recommendations are being looked at.”

There was, the person added, no schedule for this. If some changes in the IDR regime could be finalised by February, these could make their way to the 2016-17 Union Budget.

The panel had suggested BhDRs be allowed to have all permissible securities as the underlying product. Currently, the underlying securities of a foreign company while issuing IDRs should be the company's equity shares. It also recommends creating two ‘levels’ of BhDRs -- Level-I restricted to large institutional investors, with market knowledge, and Level-II being available for all investors, including retail (small, individual) ones.

It said regulations on the markets and Indian institutional investors must be modified to ensure a level field between an Indian security and an IDR in the eyes of all Indian institutional investors, to encourage them to invest in the latter.

Some of the other changes suggested include allowing only companies from Financial Action Task Force and International Organization of Securities Commissions jurisdictions, compared to just any foreign company. And, allowing the stated end-purpose to be for both capital raising and other purposes, allowing sponsored and unsponsored issues, no necessary approval from Sebi and allowing foreign companies to use the funds in India as well.

Sahoo is a former member of Sebi and a former secretary of the Institute of Company Secretaries of India. His panel had previously given reports on reforms in the ADR/GDR and ECB rules.