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Sebi allows partial flexibility for IDR investors

Sebi on Tuesday said investors will have partial flexibility in dealing with Indian Depository Receipts and can convert up to 25 per cent of their IDRs into underlying shares in a financial year.

The move is expected to help in attracting foreign entities to list their IDRs on domestic bourses.

"... to retain the domestic liquidity, it is decided to allow partial fungibility of IDRs (ie redemption/conversion of IDRs into underlying equity shares) in a financial year to the extent of 25 per cent of the IDRs originally issued," Sebi said in a circular.

In 2012-13 Budget, the government had proposed to allow two-way fungibility of IDRs to encourage greater foreign participation in the Indian capital market. The two-way fungibility would enable Indian shareholders to convert their depository receipts into equity shares of the issuer company and vice versa.

The fungibility issue is seen as one of the major factors restraining foreign entities from listing their IDRs. So far, only UK banking major Standard Chartered in 2010 has come out with their IDRs.

"Suitable instructions for modifying the existing legal framework governing IDRs, in order to implement the decision to allow 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 said.

Sebi said it has been decided to prescribe a frame work for two-way fungibility of IDRs, to improve the attractiveness and long-term sustainability of such instruments.