Guidelines
for Enabling Partial Two-Way Fungibility of Indian Depository Receipts (IDRs)
CIRCULAR, CIR/CFD/DIL/6/2013,
dated March 1, 2013
To
All Stock Exchanges
All Depositories
All Registered Merchant Bankers
All Registered Registrars to an
Issue/STA
All Registered Custodians
1. Securities and Exchange Board
of India (“SEBI”), vide circular No. CIR/CFD/DIL/10/2012 dated August 28, 2012,
has prescribed the framework for redemption of IDRs into underlying equity
shares. The circular has, inter alia, provided for partial fungibility
of IDRs (i.e. redemption/conversion of IDRs into underlying equity shares) in a
financial year to the extent of 25% of the IDRs originally issued. The Circular
also stated that 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.
2. In order to encourage more
number of foreign companies to issue IDRs in the Indian market and also to
enable the investors to take informed investment decision, it has been decided
to provide a detailed roadmap and guidelines for the future IDR issuances as
well as for the existing listed IDRs.
3. All the IDRs shall have
partial two-way fungibility. The partial two-way fungibility means that the
IDRs can be converted into underlying equity shares and the underlying equity
shares can be converted into IDRs within the available headroom. The headroom
for this purpose shall be the number of IDRs originally issued minus the number
of IDRs outstanding, which is further adjusted for IDRs redeemed into
underlying equity shares (“Headroom”).
4. The broad guidelines for
fungibility of future IDR issuances and the existing listed IDRs are given
below:
I. Guidelines for fungibility of
future IDR issuance
i. IDRs shall not be redeemable
into underlying equity shares before the expiry of one year period from the
date of listing of IDRs.
ii. After completion of one year
period from the date of listing of IDRs, the issuer shall, provide two-way
fungibility of IDRs.
iii. IDR fungibility shall be
provided on a continuous basis.
iv. The issuer shall provide said
fungibility to IDR holders in any of the following ways:
a. converting IDRs into
underlying shares; or
b. converting IDRs into
underlying shares and selling the underlying shares in the foreign market where
the shares of the issuer are listed and providing the sale proceeds to the IDR
holders; or
c. both the above options may be
provided to IDR holders.
Provided that the option once
exercised and disclosed by the issuer at the time of offering the IDRs to
public cannot be changed without the specific approval of SEBI.
v. All the IDRs that have been
applied for fungibility by the holder shall be transferred to IDR redemption
account at the time of application. The issuer shall take necessary steps to
provide underlying shares or sale proceeds as per the choice made under
sub-clause (iv) of this clause.
vi. The Issuer may receive
requests from the holders of underlying shares and convert these into IDRs
subject to the Headroom available with respect to the number of IDRs originally
issued subject to the guidelines prescribed by SEBI & Reserve Bank of India
(“RBI”) from time to time.
vii. In case of option of
converting the IDRs into underlying equity shares and providing the sale proceeds
to the IDR holders is exercised, the issuer shall disclose the range of
fixed/variable costs in percentage terms upfront and ensure that all the costs
together shall not exceed 5% of the sale proceeds.
viii. Available Headroom and
significant conversion/ reconversion transactions shall be disclosed by the
issuer on a continuous basis.
ix. The issuer shall lay down the
detailed procedures while taking into consideration the above broad guidelines
in addition to other norms specified by SEBI and RBI, from time to time.
II. Guidelines for fungibility of
existing listed IDRs
i. After completion of one year
period from the date of issue of IDRs, the issuer shall, every year provide
redemption/conversion of IDRs into underlying equity shares of the issuer of up
to 25% of the IDRs originally issued. The Issuer shall invite expression of
interest from IDR holders by giving advertisements in leading English and Hindi
national daily newspapers with wide circulation as well as notification to the
stock exchanges giving the operating guidelines for redemption/ conversion of
IDRs at least one month before the implementation.
ii. The issuer shall exercise the
option specified in sub-clause (iii) below provided that the same is disclosed
in accordance with sub-clause (xii) of this clause.
iii. The mode of fungibility: The
issuer shall provide the said fungibility to IDR holders in any of the
following ways:
a. converting IDRs into
underlying shares; or
b. converting IDRs into
underlying shares and selling the underlying shares in the foreign market where
the shares of the Issuer are listed and providing the sale proceeds to the IDR
holders; or
c. both the above options may be
provided to IDR holders.
iv. The periodicity for IDR
fungibility shall be at least once every quarter. The fungibility window shall
remain open for the period of at least seven days.
Provided that the option once
exercised and disclosed by the issuer to public cannot be changed without the
specific approval of SEBI. However, the issuer may decide to exercise the
option provided in sub-clause (xiii) below without specific approval from SEBI.
v. Total number of IDRs available
for fungibility during one fungibility window shall be fixed before the opening
of the window. Re-issuances of IDRs during the fungibility window, if any,
shall be considered for computation of Headroom only at the time of next cycle
of fungibility. Fungibility window for this purpose shall mean the time period
during which IDR holders can apply for conversion of IDRs into underlying
equity shares.
vi. In case of requests for
conversion in excess of the limit available, the manner of accepting IDRs for
conversion/ redemption or shares for re-issuance shall be on proportionate
basis.
vii. A reservation of 20% of the
IDRs made available for redemption/conversion into underlying equity shares in
the fungibility window shall be provided to Retail Investors. Within this
reserved window:
·
in
case of higher demand for fungibility, the demand shall be satisfied on
proportionate basis. Further, the excess unsatisfied demand from the retail
investors shall be included in the unreserved portion.
·
in
case of lower demand for fungibility from retail investors, the unallocated
portion shall be added to the unreserved portion.
viii. All the IDRs applied for
fungibility shall be transferred to IDR redemption account at the time of
application and in case of unsuccessful bids the balance IDRs shall be
transferred back to the account of applicant. The issuer shall take necessary
steps to provide underlying shares or cash as per the choice made under
sub-clause (iii) above.
ix. The Issuer may receive
requests from the holders of underlying shares and convert these into IDRs
subject to the Headroom available with respect to the number of IDRs originally
issued subject to the guidelines prescribed by RBI from time to time.
x. In case of option of
converting IDRs into underlying shares and providing the sale proceeds to the
IDR holders, the issuer shall disclose the range of fixed/variable costs in
percentage terms upfront and all the cost together shall not exceed 5% of the
sale proceeds.
xi. Available Headroom and
significant conversion/ reconversion transactions shall be disclosed by the
issuer on a continuous basis.
xii. Existing issuers shall
provide the option of redemption/ conversation within three months of
notification of these guidelines.
xiii. The existing issuer of IDR
may exercise the option of using the guidelines available for the new issuers
as referred above from the anniversary of the date of listing of their IDRs
after the issuance of this circular or from any of the subsequent quarters
thereafter. For this purpose, the issuer shall disclose the exercising of the
said option by giving advertisements in leading English and Hindi national
daily newspapers with wide circulation as well as notification to the stock
exchanges giving the operating guidelines for redemption/ conversion of IDRs at
least one month before exercising the option. The said option, once exercised,
cannot be reversed.
xiv. The issuer shall lay down
the detailed procedures while taking into consideration the above broad
guidelines in addition to other norms specified by SEBI and RBI, from time to
time.
5. With issuance of this circular,
SEBI circular No: CIR/CFD/DIL/10/2012 dated August 28, 2012 shall become
effective and SEBI circular No: CIR/CFD/DIL/3/2011 dated June 03, 2011 would
stand rescinded.
6. This circular is issued in
exercise of the powers conferred under Section 11 of the Securities and
Exchange Board of India Act, 1992 read with Regulation 100 of the Securities
and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009.
7. This circular is available on
SEBI website at www.sebi.gov.in under the
category “Legal Framework”.
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