Limited two-way fungibility permitted for IDRs

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The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have paved the way for limited two-way fungibility for Indian depository receipt (IDRs) through circulars on 28 August. The regulatory framework governing IDRs now enables the conversion of a foreign issuer’s equity shares into IDRs, which was previously not allowed. Other important regulatory changes are outlined below.

Money_cogs_-_redCap on redemption and conversion

The circulars have introduced a cap of 25% of the originally issued IDRs as a maximum limit for redemption/conversion in a given financial year. This means that in any given financial year a maximum of 25% of the originally issued IDRs may be redeemed or converted into underlying equity shares of the foreign issuer whose IDRs are listed. This is subject to the requirement that the IDRs are held for a period of at least one year.

Eligibility and fundraising limits

The requirement for an IDR to be “infrequently traded” to be eligible for redemption has now been removed by SEBI.

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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.

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