Foreign companies will have much easier access to Indian capital markets. The government on Tuesday eased guidelines for Indian Depository Receipts (IDRs), doing away with turnover-based ceilings and relaxing the requirement for foreign companies to have a profit and dividend track record for five years.
The rules are intended to bring the Indian stock market norms for foreign companies in step with global markets. The new provisions will deepen the stock markets and also result in slowing the build-up of foreign exchange reserves.
?Net worth and market capitalisation ceilings have been provided as the eligibility conditions for IDR issuers, instead of earlier net worth- and turnover-based ceilings. This change is with a view to facilitate better reflection of the financial sustainability/liquidity of the securities to be issued,? said a ministry of corporate affairs release.
Welcoming the changes, Sanjay Hedge, executive director, PricewaterhouseCoopers, said: ?The government is giving more flexibility to foreign firms issuing IDRs in India.?
To ensure that no fly-by-night operator takes advantage of the eased rules, the ministry has mandated a new condition requiring the issuer to have a continuous trading record or history on a stock exchange in its parent country for three preceding years.
The government has relaxed the provision that required the issuer to make profits for at least five preceding years, by bringing it at par with domestic issues. The new condition provides that the issuer should have distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three out of the preceding five years. IDRs are the reverse of ADRs, through which Indian companies access foreign markets.
The new rules also relaxed provisions relating to publishing the issuer?s audited financial results in newspapers, with the government saying they may be subjected to limited review by auditors.