Wednesday, July 18, 2007

Indian government eases IDR norms to attract foreign listings

by Vipin Agnihotri

Good new for foreign companies, from now on they will have much simpler access to Indian capital markets. In an effort to lure foreign companies to list on Indian bourses, Indian government has relaxed the rules that allow them to issue shares in the form of Indian Depository Receipts (IDR).

In terms of statistic, the limit for a foreign company to raise money from India in a financial year has been increased from 15 percent of its paid-up capital and free reserves to 25 percent of the post-issue equity shares.

The ruling has came just a day after Prime Minister’s Economic Advisory Council raised concern over the large number of capital inflows into India and recommended steps to facilitate the reverse flow of money. In my opinion, the new provisions from the government will not only deepen the stock markets but will also result in slowing the build-up of foreign exchange reserves.

Interestingly, while the instrument has been there in the fray for last two years or so, not a single company has shown interest in listing their IDRs on Indian bourses. The pivotal factor here is that in case if a foreign company decides to make a float here, the Indian investors will get a much-needed opportunity to invest directly in the foreign company.

To make sure that no fly-by-night operator takes benefit of the eased rules, Indian government has mandated a new condition needing the issuer to have a continuous trading record. 

 

 

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