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India

Global corporations can now list on the Indian Stock Exchange by offering Indian Depository Receipts (IDRs). In February the government of India passed the Companies (Issue of Indian Depository Receipts) Rules 2004, building on the amendments in December 2000 to the Companies Act, 1956 to allow foreign companies to sell securities to Indian investors.

Issuing companies must obtain prior permission of the Securities and Exchange Board of India (Sebi), the market regulator, and have been subjected to stringent eligibility requirements on issuers, such as having pre-issue paid-up capital and free reserves of $100 million, with an average turnover of $500 million over the past three financial years. The company must also have made profits and declared dividends of at least 10% for the past five years with a pre-issue debt-to-equity ratio of no more than two-to-one.

The Rules have, however, capped the issue size to 15% of the issuing company's paid-up capital and free reserves and imposed a mandatory one-year lock-in period for redemption of IDRs. The underlying equity shares of the issue must be deposited with the Overseas Custodian Bank, which, along with Domestic Depository, will be appointed for managing the issue.

The IDRs must be listed on one or more stock exchanges with nationwide trading terminals. The Rules also require the issuing company to disclose at quarterly intervals how it is using funds and declare any variation in the projections of such use.

Repatriation of the proceeds of IDR issues is subject to laws on the export of foreign exchange and any dividend or other corporate action on IDRs must be distributed in proportion to the existing holdings.

Shardul Thacker

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