IDRs: Sebi to study 20-50 firms

The Securities and Exchange of Board of India (Sebi) is likely to shortlist top 20-50 companies from the South Asian region to see if the current rules make them eligible for IDRs.

The move follows the market regulator's efforts to understand why overseas companies are not tapping the Indian Depository Receipts (IDRs) route even after relaxing many rules.

WHAT ARE IDRS?

IDRs are the Indian version of American Depository Receipts and Global Depository Receipts, which allow foreign companies to mobilise funds from Indian markets by offering equity and getting listed on Indian stock exchanges

In spite of several modifications, the instrument has not attracted a single issuer from any country. So it has been suggested that regulator shortlist 20 or 50 probable companies from South Asian countries and then apply eligibility norms to these companies, seeking to define whether even modified norms are stricter for these issuers, said sources.

IDRs are the Indian version of ADRs (American Depository Receipts) and GDRs (Global Depository Receipts), which allow foreign companies to mobilise funds from Indian markets by offering equity and getting listed on Indian stock exchanges.

While experts admit that there is enough liquidity in the Indian market, there is no particular reason why they have not picked up. It may be that the Indian market is still not attractive enough for foreign issuers to prefer it over other Asian peers.

"Issuers generally follow herd syndrome in these kinds of cases. So it is about who takes the first bet," said an investment banker.

In a major revision of IDR regulations last year, networth and market capitalisation were decided to be the eligibility criteria for IDR issuers instead of the earlier networth and turnover-based ceilings.

In December 2007, these norms were again modified and Sebi reduced the minimum application value for IDRs to Rs 20,000 from Rs 200,000 earlier.

"At least 50 per cent of the issue must be subscribed by institutional investors or qualified institutional buyers (QIBs)," said the guideline.

Says Prithvi Haldea, managing director, Prime Database, "One of the reasons for IDRs not catching fancy of overseas issuers is lack of marketing for this product. Look at LSE, NYSE, AIM or even the Hong Kong Stock Exchange. They conduct regular roadshows with investment bankers in various countries for tapping products in their countries. But in India we have not marketed IDRs."

Although, the market is agog with news of some companies taking this route, nothing concrete has come so far.

K Hari, assistant vice-president, National Stock Exchange, says, "We keep getting enquiries from various companies, but nothing is in advanced stages and we do tell the business community about this product whenever we are on an overseas trip."

However, if a leading foreign investment bank is to be believed, we may see an IDR by the end of this year.

"We are hopeful of getting some company tapping Indian markets by the end of this year," says an India representative of a bank who preferred not to be quoted.