Maharashtra National Law University, Aurangabad
Constituents of a General Depository Receipt:
This is a ‘safe
house’, where all the shares owned by the shareholders are held, in an
electronic format and are stored for in a secured form, which aids in
production of valid certificates easy and prompt.
Share Registrar, Transfer Agent
Registrar is the person who authorises the issue of securities. He is
responsible for the flow of trade in a general depository receipt.
transfer agent is a person who facilitates the transfer of securities, and
since they are issued in electronic format, the buying and selling becomes
comparatively easier, and the transfer agent is to simply regulate proper
As the name suggest,
this corporation is responsible for the settlement of transfer of securities between
the buyers and the sellers.
participant is an agent of the depository, who acts like a broker of shares
and is assigned to shareholders to aid them for efficient trade in their
Keywords: Depository Receipts, Transferrable
Instrument, Stock Exchange, Equity Shares, IDRs.
paid‐up capital and free reserves of at least US$ 50 million and have a
minimum average market capitalization (during the last 3 years) in its home
country of at least US$ 100 million
A continuous trading record or
history on a stock exchange in its home country for at least three
immediately preceding years.
track record of distributable profits for at least three out of immediately
preceding five years
Listed in its home country and not
been prohibited to issue securities by any Regulatory Body and has a good
track record with respect to compliance with securities market regulations in
its home country. The size of an IDR issue shall not be less than Rs. 50
i. The company will file a draft red herring prospectus (DRHP), which will be examined by SEBI.
ii. “The general body of investors will get a chance to read and review the DRHP as it is a public document, available on the websites of SEBI.”
iii. After SEBI gives its clearance, the company sets the issue dates and files the document with the Registrar of Companies.
iv. After the approval given by the ROC, the issuing company then is allowed to opt for marketing of the issue. The issue will be floated for a fixed number of days and requires the investors to submit their applications within this stipulated period.
v. Bidding will take place within a price limit constrained by lower and upper limits and the issue price will then be determined after the closing of the issue.
vi. The depository receipts will then be allocated to the investors in their “DEMAT” account, in an electronic format, as laid down by the SEBI, and hence, the process of issue of shares to the general public is essentially similar to that of the domestic issue.
C. BENEFITS OF IDRs
Benefits to the Issuing Company:
a. Larger Pool of Capital: India, being a populous nation, provides for one the largest consumer markets in the world. This attracts foreign investments to cater the larger pool of potential capital.
b. Recognition: India, as stated above, being populous, provides for a global recognition to the foreign investments, as an established market allows for greater trade and consequent growth.
c. Acquisition: Comparative analysis allows for significant valuation of domestic companies, which then, in order to compete with their foreign counterparts, allows the moulding of financial strategies, such as mergers or such, to economically prosper.
d. Returns: Since these are not debt instruments, assured returns are not a guarantee. This allows flexibility in distribution of profits and relaxes the stress of distributions.
e. Accessibility: Indian markets provide for established investor base, which allows the companies, of foreign origin, to seamlessly and reliably invest in it.
f. Market Intermediaries: Since an authorised institution, such as SEBI, is a regulator of IDRs, reliability, as a factor, becomes solid and develops trust for the markets.
Benefits to the Investors:
a. Portfolio Diversification: Since IDRs provide for investment opportunities in the foreign issuing companies, it aids in diversifying the portfolio of the domestic investors.
b. Active Participation: Foreign Participation, followed by portfolio diversification and regulated transactions stimulate active participation in the community.
c. Investments: Since IDRs are legally recognised, they act as significant investment opportunities for the investors.
d. Investor Rights: Since the foreign investment companies have to comply with the domestic norms, the rights of the domestic investors are primarily and unconditionally guaranteed.
e. IOSCO Standards: The International Organisation of Securities Commissions helps in global recognition and legitimization of the issuing company as well as the general security of the rights of the investors.
Depository Receipts are an example of financial engineering activity, which can be used for enhancement of capital resources. By identifying the needs of the issuers and the investors, the knowledge regarding associated tasks becomes accessible and this accessibility helps in the financial engineering to shape an asset, in such a form, which suits the requirements and draws attention. With the IDRs in the picture, the global economy now becomes more diverse with regards to its potential markets and subsequent financial planning.
The only key difference that arises in the issuance of the shares of the foreign company is with regards to its listing under the SEBI. As specified under Rule 13 of the 2014 Rules, the specifications are to be met and only on the compliance will the SEBI allow for IDRs.
- SITES REFERRED
(Registration of Foreign Companies) Rules, 2014, Rule 13.