In the year 2000, by the introduction of Section 605 A of the Companies Act, 1956, the first step to give foreign companies access to raise capital via the Indian stock market was taken.
The second step was taken in 2004 when the Indian Depository Receipt rules were framed. Finally SEBI has taken the third step on April 3rd 2006, in the back drop of the Indian stock exchanges boom, by the introduction of Chapter VIA in the Disclosure and Investor Protection Guidelines, by framing the eligibility criteria as to which foreign companies will be permitted to raise capital on the Indian bourses by issuing IDRs against their underlying shares.
Issuers Eligibility Criteria.
Must have an average; turn over of US$ 500 million during the previous 3 financial years.
Must have capital and free reserves which must aggregate to atleast US$100 million.
Must be making a profit for the previous 5 years and must have declared a dividend of 10% in each such year.
The pre issue debt-equity ratio must be not more than 2:1.
Must be listed in its home country.
Must not be prohibited by any regulatory body to issue securities
Must have a good track record with compliance with securities market regulations.
Must comply with any additional criteria set by SEBI.
Who can Invest?
Qualified Institutional Buyers
NRI’s and FII’s with permission of the Reserve Bank Of India.
The minimum issue size is Rs. 50 crores,
90% of the issue must be subscribed.
Automatic fungibility is not permitted.
The following conditions would also apply:
In one financial year the market cap cannot exceed 15 % of the paid up capital and free reserves of the issuer
Redemption into underlying shares is prohibited for 1 year, beginning the issue date.
Repatriation of proceeds is subject to Indian foreign exchange laws, prevailing at time of repatriation.
The issue must be in rupees.
The issuer is subject to Clause 49 of the listing agreement.
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