Sebi chairman M. Damodaran

Mumbai, Dec. 5: Come 2007, the Indian stock markets could see foreign companies raising funds through Indian depository receipts (IDRs).

Securities and Exchange Board of India (Sebi) chairman M Damodaran today said that IDRs will be operational from next calendar year and some of the biggest global companies are likely to evince interest in the process.

Delivering the K P Hormis Memorial Lecture organised by the Febbank KP Hormis Trust in Kochi last night, the Sebi chief said, “We expect IDRs to be launched by 2007.”

The instrument will ensure that foreign companies raise funds in the Indian market in a cost effective manner. Damodaran also pointed out that in the next 12-18 months, some of the biggest companies in the world would be filing for IDRs, though he did not elaborate.

Although the government had allowed foreign companies to issue IDRs some time ago, it did not meet with an enthusiastic response from overseas companies with observers pointing out that this was largely due to the tough conditions set.

Announcing the broad guidelines earlier, the finance ministry had stipulated that issuers should have a pre-issue paid-up capital and free reserves of at least $100 million and an average turnover of $500 million during the preceding three financial years.

Further, the issue size was capped at 15 per cent of the company's free reserves. There were restrictions on its debt-equity ratio of more than 2:1 even as the norms also said that the firm should be making a profit for at least five years preceding the issue and have been declaring a dividend of not less than 10 per cent each year.

Moreover, the repatriation of IDR issue proceeds, will also be subject to the laws on export of foreign exchange. Here, a one-year lock-in period was provided for the redemption of IDRs by companies based outside India.

Amid such restrictions, Damodaran’s comments has led to speculations that some of the rules associated with issuance of IDRs may be relaxed over the coming months.

The Sebi chairman further revealed that other initiatives are also being planned. These include a dedicated exchange for Small and Medium Enterprises (SMEs) by next year and a comprehensive training institute for capital market personnel in Mumbai. The institute would be set up with public-private partnership, he added.

The market regulator also wanted to reach out to investors and was in the process of starting a major investor campaign, which would be funded by the Investment Protection Fund, he said.

A brave new world

Indian depository receipts likely from next year

Sebi expects some big guns to issue paper in the next 12-18 months

Issue norms exist, but met with poor response as they were found to be restrictive

Market expects the rules to be eased

Bourse likely for small and medium enterprises