Indian Depository Receipts: How Foreign Companies List in India

Indian depository receipts are the one route that lets a foreign company sell a piece of itself to Indian investors in rupees, on BSE and NSE, without setting up a listed Indian subsidiary. The idea has been on the statute books for two decades. It has been used in a big way exactly once that most investors remember, by Standard Chartered in 2010, and that listing was wound up ten years later. So why bother learning how it works? Because every time someone talks about Indians owning global companies without an overseas brokerage account, the IDR comes up again, and the rules behind it are worth knowing before you buy anything that looks like one.

We will walk through what an IDR actually is, who is allowed to issue one, how an IDR issue differs from a normal IPO, and what happened to the only IDR most of us have seen trade. There is a worked example on pricing and conversion near the end.

What Indian depository receipts are

SEBI’s own FAQ on public issues under the ICDR Regulations, 2018 describes an IDR as a financial instrument denominated in Indian rupees in the form of a depository receipt. It is the Indian cousin of the American depositary receipts (ADRs) and global depositary receipts (GDRs) that companies use to reach investors outside their home market. SEBI calls the IDR the Indian version of those instruments.

The plumbing has three main parts. The foreign company’s equity shares sit with an overseas custodian bank, which is established outside India but has a place of business here. A domestic depository, a custodian registered with SEBI, issues the receipts in India against those shares. And a SEBI-registered merchant banker does the due diligence and files the draft prospectus. When the company pays a dividend or announces some other corporate action, SEBI’s FAQ says the domestic depository passes those benefits on to IDR holders in proportion to their holdings, subject to the terms in the offer document.

So you never hold the share itself. You hold a receipt that stands for a fixed slice of a share, traded in rupees, settled in your demat account like any Indian stock.

An IDR is not the foreign share. It is a rupee receipt for a fixed slice of that share, and every right you have flows through the depository’s books.

The rules that govern an IDR issue

According to the SEBI FAQ, a company incorporated outside India issues IDRs through a domestic depository under two sets of rules: Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014, made under the Companies Act, 2013, and a list of regulations in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The foreign exchange side falls under the RBI’s Master Direction on foreign investment in India. One more layer matters for banks: if the issuer is a financial or banking company with a branch or subsidiary in India, it also needs prior approval from the sector regulator.

The bar is deliberately high. This is not a route for a small overseas start-up to raise a few crore.

Eligibility under the Companies Rules

The SEBI FAQ summarises the Companies Rules conditions this way. The issuer must have:

• pre-issue paid-up capital and free reserves of at least US$50 million;
• an average market capitalisation over the last three years of at least US$100 million in its home market;
• distributable profits in at least three of the immediately preceding five years; and
• continuous trading on a stock exchange in its home country for at least the three immediately preceding years.

Eligibility under SEBI’s ICDR Regulations

Regulation 183 of the ICDR Regulations adds its own list. The issuer must have been listed in its home country for at least three immediately preceding years, must not be barred from issuing securities by any regulator, must have a clean compliance record with its home securities regulator, and none of its promoters or directors can be a fugitive economic offender. “Home country” here means the country where the company is both incorporated and listed.

The issue itself has conditions too:

• the issue size cannot be less than ₹50 crore;
• there can be only one denomination of IDRs of the issuer at any time;
• the underlying equity shares must be listed, or be listed, in the home country before the IDRs list in India, and must rank pari passu with existing shares of the same class;
• firm, verifiable arrangements must be in place for 75% of the stated means of finance for any project funded from the issue, excluding the IDR money itself and identifiable internal accruals; and
• money earmarked for general corporate purposes cannot exceed 25% of the amount raised.

The issuer also needs in-principle listing approval from the exchanges, a designated stock exchange, and an agreement with a depository so the receipts can be held in demat form. SEBI’s FAQ adds that IDRs must be denominated in rupees only and must list on at least one Indian exchange with nationwide terminals.

How an IDR issue differs from a normal IPO

For an investor, the experience looks familiar. The foreign issuer files a draft prospectus with SEBI, any changes SEBI asks for go into the final prospectus filed with the Registrar of Companies, and the issue opens for bids. If you have read our guide to IPO investing in India, most of the steps will feel like home.

The differences sit in who can bid and how the book is split. Going by the SEBI FAQ:

• IDRs can be bought by any person resident in India as defined under FEMA.
• The minimum application amount in an IDR issue is ₹20,000.
• At least 50% of the IDRs issued must be subscribed by qualified institutional buyers (QIBs). The other 50% is available to non-institutional and retail investors.
• Indian companies can invest only within whatever investment limits apply to them, and insurance companies are not permitted to invest in IDRs at all.

That 50% QIB floor is a bigger deal than it looks. In a regular mainboard IPO, a weak institutional book is one problem among many. In an IDR issue, if the big funds don’t turn up for half the issue, the structure itself is in trouble. It is worth reading alongside our explainer on minimum subscription in an IPO, which covers what happens when an issue falls short.

Fungibility: can you swap an IDR for the real share?

This is where IDRs get awkward. SEBI’s FAQ says IDRs can be converted or redeemed into the underlying shares only after one year from the date of listing, and only in compliance with FEMA and the RBI and SEBI rules on the subject. The company announces a “fungibility window”, a period during which holders can apply for conversion, through leading English and Hindi newspapers and on the stock exchange websites. The FAQ also notes that RBI and SEBI have introduced limited two-way fungibility.

In plain words: your exit is usually to sell the IDR on the Indian exchange. Converting into the foreign share is possible but procedural, and the shares you get would sit abroad.

With an IDR, your practical exit is the Indian order book. If that order book is thin, the gap between the receipt and the share it represents can stay open longer than you would like.

The Standard Chartered IDR: the case everyone cites

The Wikipedia page on Indian Depository Receipts, drawing on contemporary reports, records that Standard Chartered PLC filed its draft red herring prospectus with SEBI on March 30, 2010, opened the offer on May 25, 2010 with a price band of ₹100 to ₹115, fixed the issue price at ₹104 and listed on BSE and NSE on June 11, 2010. The bank issued 24 crore IDRs. At ₹104 each, that works out to roughly ₹2,496 crore before costs.

Standard Chartered’s own letter to IDR holders dated March 16, 2020 confirms the structure: 240,000,000 IDRs issued in June 2010, with every 10 IDRs representing one ordinary share of US$0.50 nominal value. The domestic depository was Standard Chartered Bank, Mumbai.

That same letter announced the end. The company said SEBI had approved the termination process, subject to conditions, by a letter dated March 6, 2020. It gave a 90-day notice running from March 18 to June 15, 2020. During that window, holders could pick one or both of two options:

• Conversion: take delivery of the underlying shares. This needed a valid, active CREST account in the United Kingdom, which most Indian retail holders did not have.
• Cash-out: surrender the IDRs and receive the proceeds, after taxes and brokerage, from selling the underlying shares on the London Stock Exchange. No CREST account needed.

Anyone who did nothing would have their IDRs treated as “Sale IDRs”, with the underlying shares mandatorily sold on the LSE after the notice period.

The bank’s press release of July 22, 2020 closed the story. As of June 19, 2020, around 7.5 million IDRs were still outstanding out of the original 240 million, which is a little over 3%. The roughly 750,000 underlying shares they represented were sold on the LSE on June 22, 2020, the net proceeds went to the holders, and the IDRs were delisted from BSE and NSE.

Two lessons sit in that sequence. First, the issuer, not the investor, decides when the programme ends, under the deposit agreement. Second, when it ends, a retail holder without foreign market access ends up with cash, at whatever price the overseas market offers on the sale date.

Worked example: what an IDR should be worth

The numbers below are hypothetical and only show the arithmetic. They are not prices of any real security.

Say a foreign bank lists IDRs in India where, like the Standard Chartered programme, 10 IDRs represent one share. Its share trades at £8.00 in London and the pound is at ₹110 in this example.

• Value of one share in rupees: £8.00 × 110 = ₹880.
• Value of one IDR, ignoring costs: ₹880 ÷ 10 = ₹88.

Now suppose the IDR is trading at ₹80 on NSE. That is a discount of ₹8, or about 9.1% below the theoretical value (8 ÷ 88). Why might that gap survive? Conversion is only allowed in fungibility windows and after the first year, the person converting needs to hold shares abroad, and there are costs on both sides. The gap can also flip into a premium if Indian demand for the receipt runs ahead of the London price.

Next, a dividend. Suppose the company declares 20 pence per share. Your 1,000 IDRs represent 100 shares, so the gross entitlement is 100 × £0.20 = £20, which at ₹110 is ₹2,200. What actually reaches your bank account depends on the depository’s conversion rate on the day, taxes and any charges set out in the offer document. The SEBI FAQ only promises that benefits are passed on in proportion to holdings, subject to those terms.

Finally, the minimum application. At a hypothetical issue price of ₹100, the ₹20,000 floor means a bid for at least 200 IDRs, which in this example is 20 underlying shares. The actual bid lot is whatever the prospectus fixes.

What to check before you buy anything sold as an IDR

• The ratio. How many receipts make one share? Every valuation you do starts here.
• The home-market price and the currency. You carry two risks at once: the foreign stock and the rupee against its currency.
• Trading volume in India. Thin volume means a wide spread and a hard exit.
• Fungibility terms. When can you convert, and can you actually hold the foreign share if you do?
• Termination clauses in the deposit agreement. Standard Chartered gave 90 days’ notice. Read what your issuer can do.
• Dividend mechanics. Who converts the currency, at what rate, and with what deductions?

Our take: an IDR is a perfectly legitimate instrument, but it is a wrapper around someone else’s stock, sitting on top of a deposit agreement you will probably never read. If one ever lists again, the first page of the prospectus to open is the section on fungibility and termination, not the one on growth plans.

Sources

• SEBI: FAQs on public issues under the ICDR Regulations, 2018 (Section II, Indian Depository Receipts)
• Regulation 183, SEBI (ICDR) Regulations, 2018, via Indian Kanoon
• Standard Chartered: letter to IDR holders on termination, March 16, 2020
• Standard Chartered: completion of delisting of IDRs, July 22, 2020
• Wikipedia: Indian Depository Receipt

Disclaimer: This article is for information and education only and is not investment advice. Please consult a SEBI-registered adviser before making any investment decision.