In a bid to give bigger investment opportunities to retail investors, the Securities and Exchange Board of India (SEBI) has allowed the Indian individuals to participate in the public issue of foreign companies on Indian stock exchanges, commonly known as Indian Depository Receipts (IDRs), throwing open a field so far restricted to qualified institutional buyers (QIBs).
IDRs represent underlying shares lodged in an Indian domestic depository.
While allowing in ordinary investors, the market watchdog has reduced the minimum application amount to Rs 20,000 from the current level of Rs 2,00,000. However, the relaxation is subject to the condition that a minimum of 50 per cent of an issue be subscribed to by QIBs.
The new relaxation would enable many overseas registered companies to enter the Indian capital market. Due to the current restrictions, some of the companies such as Genpact and Exl Services had made their public issues in overseas countries.
However, only strong overseas-incorporated companies would be allowed through the IDR route, with the norms stipulating stiff entry barriers. Companies would have to have a pre-issue paid-up capital and free reserves of at least $100 million and an average turnover of $500 million during the three financial years preceding the issue in order to be eligible.
Besides, the issuing company should have been making profits for at least five years preceding the issue and should have declared a dividend of not less than 10 per cent each year for the said period.
In addition, SEBI also made it mandatory to quote Permanent Account Number (PAN) in application forms for public or rights issues irrespective of the value of application. Currently, applicants need to disclose the PAN only in case the application amount being more than Rs 50,000.