The Telegraph
Since 1st March, 1999
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IDR guidelines yet to be in place

New Delhi, Oct. 1: The department of company affairs (DCA), which convened a meeting today to deliberate on the guidelines for issuing Indian Depository Receipts (IDRs), has asked all participants concerned to re-examine the draft circulated by DCA and come back with suggestions.

Sources in the DCA said no decision was taken at today’s meeting; the next meeting on the subject is likely to be held after October 15.

The meeting was attended by representatives from the Securities and Exchange Board Of India (Sebi), professional institutes like the Institute of Chartered Accountants of India, Institute of Company Secretaries of India, besides senior officials from the DCA and others. Some concerned representatives, including those from RBI, were not present, sources said.

Sources said the meeting had deliberated that the market regulator had to do a lot in terms of finalising the norms for IDRs. It has to lay down the entry barriers for the companies that want to come up with an IDR.

Sebi will also have to flesh out the details pertaining to the pre-listing norms, as also whether unlisted companies can be allowed to go in for IDRs or only listed companies will be allowed, sources said.

According to the draft companies (Issue of IDRs) rules 2002 prepared by the DCA, a foreign company issuing an IDR will have to have a profit-making record in the last five years. Also it has to have a dividend payment of atleast 10 per cent in those five years and a debt-equity ratio of atleast 2:1.

According to senior merchant banker K.K. Sengupta, “A five-year profitability track record is a move in the right direction to protect the gullible investors. On the flip side it will have fewer takers for the IDRs, he said.”

“It will be a good restrictive move. Projections of companies with five years of profit making are likely to be achieved rather than those with two or three years,” he added.

IDRs can be issued by foreign companies only after getting permission from DCA and the authority concerned from where the company hails. Applications have to be filed with DCA at least 90 days before the proposed issue. It may be mentioned here that only companies incorporated outside India are to be allowed to float IDRs.

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