Sebi's IDR norms raise entry bar for retail investors

The Securities and Exchange Board of India on Thursday issued disclosure and eligibility norms for Indian depository receipts (IDRs), the fund raising vehicle of foreign corporates in India.

Only qualified institutional buyers and those who can invest a minimum of Rs 5 lakh can subscribe to an IDR. The eligibility norm, thus, effectively bars retail investors from the IDR market.

The minimum issue size has been pegged at Rs 50 crore (roughly $10 million). With regard to minimum subscription terms, the same rule as in case of Indian companies apply: a minimum of 90 per cent should be available otherwise the money would have to be returned within eight working days.

As far as disclosure is concerned, the offer document has to contain a summary of the terms of the offer and forward-looking statements.

Apart from the usual information on the company and its directors, the offer document should also contain: provisions relating to punishment for fictitious applications, declaration by the merchant banker with regard to adequacy of resources of underwriters to discharge their respective obligations, a statement by the issuer that all the proceeds shall be transferred to a separate domestic bank account, with name and address of the bank and the nature and number of the account to which the amount shall be credited.

There should also be disclosures on important events in the recent past "" at least two financial years preceding the issue "" providing details of important developments on three key areas: operations and management, shareholding patterns and business environment.

Detailed information regarding the existing shares of the company in the parent country has to be given.

The dividend policy of the company should also be clearly specified.

There should also be information on foreign investment laws and exchange control regulations of the country of incorporation or where the shares are listed.

While the company's statutory auditors have to give report on the company's financial performance for the preceding five years the offer document should also contain a report by a domestic depository on profits, losses, assets and liabilities for each of the five financial years.

The gap between the date of the issue and the report should not be more than 120 days. This report can be made on the basis of Indian or international accounting standards and has to be both on a consolidated and standalone basis.

If the proceeds of the IDR issue are used for investing in other firms, the details of such entities should be furnished. The capital markets regulator has also asked for details of the financial markets of the home country along with the regulations there.