Indian Depository

Receipts
 What is a depository receipt?

A depository receipt (DR) is a type of negotiable

financial security that is traded in the local stock
exchange but represents a security, usually in the
form of equity, that is issued by a foreign publicly
listed company. The DR, which is a physical
certificate, allows investors to hold shares in equity of
other countries.
 What is IDR?

An IDR is an instrument in the form of a

Depository Receipt created by the Indian
depository in India against the underlying
equity shares of the issuing company in order
to enable foreign companies to raise funds
from the Indian Markets.
 Features of IDR
 Overseas Custodian : It is a foreign bank having branches in India and
requires approval from Finance Ministry for acting as custodian and
Indian depository has to be registered with SEBI.
 Approvals for issue of IDRs : IDR issue will require approval from
SEBI and application can be made for this purpose 90 days before the
issue opening date.
 Listing : These IDRs would be listed on stock exchanges in India and
would be freely transferable.
 Eligibility conditions for overseas companies to issue IDRs:
 Capital : The overseas company intending to issue IDRs should have
paid up capital and free reserve of atleast $ 100 million.
 Sales turnover : It should have an average turnover of $ 500 million
during the last three years.
 Profits/dividend : Such company should also have earned profits in the
last 5 years and should have declared dividend of at least 10% each year
during this period.
 Debt equity ratio : The pre-issue debt equity ratio of such company
should not be more than 2:1.
 Extent of issue : The issue during a particular year should not exceed 15%
of the paid up capital plus free reserves.
 Redemption : IDRs would not be redeemable into underlying equity
shares before one year from date of issue.
 Denomination : IDRs would be denominated in Indian rupees, irrespective
of the denomination of underlying shares.
 Benefits : In addition to other avenues, IDR is an additional investment
opportunity for Indian investors for overseas investment.
 How will it work?
 Draft prospectus is filed with SEBI
 Issue fee is paid
 Issuing company will obtain necessary permission &
exemption from the country of its incorporation & appoint
an overseas custodian bank for issue
 Deliver the underlying shares to the overseas bank
 Trading & settlement will be similar to those of Indian
Shares.
 How are IDR’s taxed?
 Not subject to STT like shares
 Not subject to dividend distribution tax
 General rule regarding capital gain taxation
shall apply
 No benefits for long term holders of IDR’s are
available
 Standard Chartered IDR
 First IDR issued in India – 25th May, 2010
 Price Band – Rs. 100 to Rs. 115, later fixed at
Rs.104
 Every 10 IDRs represents one share of the bank
in UK.
 Offering 240 mn IDRs to raise around Rs. 2490
crores
 Opened at stock exchange on June 11 at Rs.106
 It appointed UBS Securities India Private Ltd and
Goldman Sachs (India) Securities Private Ltd (as
global coordinators); and JM Financial Consultants
Private Limited, DSP Merrill Lynch Ltd, Kotak
Mahindra Capital Co. Ltd and SBI Capital Markets
Ltd as book running lead managers.
 It appointed its STCI Capital Markets Ltd as a co-
book running lead manager
 Poor response
 Of the 20.4-crore IDRs, only 1.11 crore or 5per cent of
the total were subscribed for.
 This being the first issue where qualified institutional
buyers (QIB) had to pay 100 per cent money upfront
 There is just no excitement for this issue, people think
they will not make gains on listing in such a market
 Of the 7.2 crore shares on offer to the retail investors,
only 7.2 lakh shares were bid for (0.01 times) and HNI
portion was subscribed even less — by 0.0009 times.
 Reasons
 Only qualified institutional buyers ( QIBs), even among them
who are investing in India through tax- havens, have
subscribed to the issue mostly
 Volatility in global market, and Indian stocks being more
attractive than those of other countries
 There is confusion in the market on how much of tax
StanChart's dividends in IDRs would attract in UK, and in
what form -- short- term or long- term capital gains
Thank you !!