Foreign Trade Policy

Indian Depository Receipt and Its Procedure

 Meaning

An Indian Depository Receipt (IDR) is a financial 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 layman language; it’s a way of subscribing of foreign security by Indians entity or individuals)

Conditions to be complied with

1.     Its pre-issue paid-up capital and free reserves are at least US$ 50 million and;

2.     Minimum average market capitalization during the last three years in its parent country of at least US$ 100 million;

3.     Continuously trading on a stock exchange in its parent or home country (the country of incorporation of such company) for at least three immediately preceding years;

4.      Track record of distributable profits for at least three out of immediately preceding five years;

5.     It fulfils such other eligibility criteria as may be laid down by the Securities and Exchange Board of India from time to time in this behalf.

Procedure to be followed for issue of IDRs

Issuing company shall follow the following procedure for making an issue of IDRs:

Issuing company shall, obtain the necessary approvals or exemptions from the appropriate authorities from its incorporating Country.

Prior written approval from the Securities and Exchange Board of India on an application made in this behalf for issue of IDRs along with the issue size.

An application shall be made to the SEBI along with draft prospectus at least ninety days prior to the opening date of the IDRs issue.

  

Issuing Company shall file a Due Diligence Report to SEBI through a Merchant Banker.

The Securities and Exchange Board of India may, within a period of thirty days of receipt of an application, call for such further information, and explanations, as it may deem necessary, for disposal of such application and shall dispose the application within a period of thirty days of receipt of further information or explanation.

If within a period of sixty days from the date of submission of application or draft prospectus, the Securities and Exchange Board of India specifies any changes to be made in the draft prospectus, the prospectus shall not be filed with the Securities and Exchange Board of India or Registrar of Companies unless such changes have been incorporated therein.

The issuing company shall on approval being granted by the Securities and Exchange Board of India to an application, pay to the Securities and Exchange Board of India an issue fee as may be prescribed from time to time by the Securities and Exchange Board of India.

The issuing company shall file a prospectus, to the SEBI and ROC, New Delhi before such issue,

(Certified by two authorized signatories of the issuing company, one of whom shall be a whole-time director and other the Chief Financial Officer stating the particulars of the resolution of the Board by which it was approved)

The prospectus to be filed with the Securities and Exchange Board of India and the Registrar of Companies, New Delhi shall contain the prescribed particulars and shall be signed by all the whole-time directors of the issuing company, and the Chief Financial Officer.

Issuing company shall appoint

An overseas custodian bank,

A Domestic Depository and a Merchant Banker for the purpose of issue of IDRs.

Issuing company may appoint underwriters registered with the Securities and Exchange Board of India to underwrite the issue of IDRs.

Issuing company shall deliver the underlying equity shares or cause them to be delivered to an Overseas Custodian Bank and the said bank shall authorize the domestic depository to issue IDRs.

Issuing company shall obtain in-principle listing permission from one or more stock exchanges having nationwide trading terminals in India.

 Content of prospectus or letter of offer

General information	Name and address of the registered office of the company; Name and address of the Domestic Depository, the Overseas Custodian Bank with the address of its office in India, the Merchant Banker, the underwriter to the issue and any other intermediary which may be appointed; Names and addresses of Stock Exchanges where applications are made or proposed to be made for listing of the IDRs; Names and addresses of Stock Exchanges where applications are made or proposed to be made for listing of the IDRs; Provisions relating to punishment for fictitious applications; Statement or declaration for refund of excess subscription; Declaration about issue of allotment letters or certificates or IDRs within the stipulated period; a.      Date of opening of issue b.     Date of Closing of Issue Declaration by the Merchant Banker with regard to adequacy of resources of underwriters to discharge their respective obligations, in case of being required to do so; Statement by the Issuing company that all moneys received out of issue of IDRs shall be transferred to a separate domestic bank account, name and address of the bank and the nature and number of the account to which the amount shall be credited; The details of proposed utilization of the proceeds of the IDR issue.
Capital Structure of the Company	Authorized, Issued Subscribed and paid-up capital of issuing company
Terms of the issue	Rights of the IDR holders against the underlying securities; Details of availability of prospectus and forms, i.e., date, time, place etc.; Amount and mode of payment seeking issue of IDRs; and Special tax benefits for the Issuing company and holders of IDRs in India.
Particulars of Issue	The objects of the issue; The cost of the Project, if any; and The means of financing the projects, if any including contribution by promoters
Company, Management and Project	Main objects, history and present business of the company; Promoters or Promoter group and their background. If there are no identifiable promoters, the names, addresses and other particulars as may be specified by the Securities and Exchange Board of India of all the persons who hold 5% or more equity share capital of the company shall be disclosed; The subsidiaries of the company, if any; The particulars of the Management or Board ; The location of the project, if any; The details of plant and machinery, infrastructure facilities, technology etc., where applicable; Schedule of implementation of project and progress made so far, if applicable; Nature of product(s), consumer(s), industrial users; The particulars of legal, financial and other defaults, if any; Risk factors to the issue as perceived; and Consent of the Merchant Bankers, Overseas Custodian Bank, the Domestic Depository and all other intermediaries associated with the issue of IDRs. The information, as may be specified by the Securities and Exchange Board of India, in respect of listing, trading record or history of the Issuing company on all the stock exchanges, whether situated in its parent country or elsewhere.
Report	A report by the statutory auditor of the Issuing company, in such form as may be specified by the Securities and Exchange Board of India Audited financial statements of the Issuing company in respect of three financial years immediately preceding the date of prospectus;
Other Information	The Minimum subscription for the issue; The fees and expenses payable to the intermediaries involved in the issue of IDRs; The declaration with regard to compliance with the Foreign Exchange Management Act, 1999
Inspection of Documents	The Place at which inspection of the offer documents, the financial statements and auditor's report thereof shall be allowed during the normal business hours; and any other information as specified by the Securities and Exchange Board of India or the Income-tax Authorities or the Reserve Bank of India or other regulatory authorities from time to time.

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