The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) on Tuesday allowed partial flexibility in the conversion of Indian depository receipts (IDRs) into equity shares by investors, while capping the funds to be raised through IDRs at $5 billion.
The move is expected to help attract foreign entities to list their IDRs on domestic bourses.
According to a Sebi circular, the decision is aimed at retaining “domestic liquidity”.
In the Budget for the 2012-13 financial year, the government proposed two-way fungibility of IDRs to encourage more foreign participation in the Indian capital markets.
In a separate circular, the RBI also said there would be an overall cap of $5 billion for raising of capital through IDRs by foreign companies in Indian markets.
"This cap is akin to those imposed for FII investment in debt securities, and will be monitored by Sebi," it said.
The fungibility is similar to the limited two-way flexibility in ADRs and GDRs issued by domestic companies in foreign markets, the central bank added.
The step will enable Indian shareholders to convert their depository receipts into equity shares of the issuer company and vice versa.
The fungibility issue has been considered one of the major factors limiting foreign entities from listing their IDRs. So far, only UK banking major Standard Chartered has issued IDRs, in 2010.
"Suitable instructions for modifying the existing legal framework governing IDRs, in order to implement the decision to allow the redemption of IDRs into underlying equity shares and re-conversion of equity shares of a foreign issuer (which has already listed their IDRs) into IDRs, will be issued separately," the circular noted.
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