Procedure for Initial Public Offer of Indian Depository Receipts (IDRs)

Introduction:

As per Section 2(48) of Companies Act 2013 Indian Depository Receipt (IDR) means any instrument in the form of a depository receipt created by a Domestic Depository in India and authorized by a company incorporated outside India which is making an issue of such depository receipts. Issuing Indian Depository Receipt (IDR) is one of modes available to companies incorporated outside India for raising funds from India.

Intermediaries involved in the issue of Indian Depository Receipts (IDRs)

Companies incorporated outside India may issue Indian Depository Receipts (IDRs) through a Domestic Depository, to a person resident in India and a person resident outside India by complying with the provisions of the Companies (Registration of Foreign Companies) Rules, 2014 and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Also, any issue of Indian Depository Receipts (IDRs) by financial/ banking companies having presence in India, either through a branch or subsidiary, shall require prior approval of the sectoral regulator(s).

Applicable Provisions:

1. Companies Act, 2013
2. Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014
3. Regulation 183, 184, 186, 189, 191, 192, 193, 194, 197, 198, 200, 201, 202, 203, 204, 205, 206, 208, 209, Schedule III, IV, V, IX, X, XII, XVI, XVII and XIX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
4. Para 1, 1.5 of Annexure 9 of the Master Direction- Foreign Investment in India

Mandatory Requirements:

1. Issuing company shall abstain from issuing IDRs unless (Companies (Registration of Foreign Companies) Rules, 2014):
   • its pre-issue paid-up capital and free reserves are at least US$ 50 million and it has a minimum average market capitalization (during the last 3 years) in its parent country of at least US$ 100 million
   • it has a track record of distributable profits for 3 years at least out of immediately preceding 5 years
   • it has been continuously trading on a Stock Exchange in its parent or home country (the country of incorporation of such company) for at least immediately 3 preceding years.
2. Issuing company shall be eligible to make an issue of IDRs only if (SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018):
   • it is listed in its home country for at least immediately 3 preceding years
   • it is not prohibited to issue securities by any regulatory body
   • it has a track record of compliance with the securities market regulations in its home country
   • any of its promoters or directors is not a fugitive economic offender
   • issue shall be subject to the following conditions:
     • issue size shall not be less than fifty crore rupees
     • there shall be only one denomination of IDRs of the issuer, at any given time
     • underlying equity shares against which IDRs are issued have been or will be listed in its home country before listing of IDRs in Stock Exchange(s)
     • underlying shares of IDRs shall rank pari passu with the existing shares of the same class.
3. Obtain in-principle approval for listing of IDRs to one or more Stock Exchange(s) and chose one of them as the designated Stock Exchange.
4. Enter into an agreement with a Depository for dematerialization of proposed issue of IDRs.
5. Make firm arrangements of finance* from verifiable means for funding of the issue.
6. IDRs shall be denominated in Indian Rupees only.

*Note: 75% of the stated means of finance for the project proposed to be funded from issue proceeds, excluding the amount to be raised through the proposed issue of IDRs or through existing identifiable internal accruals.

Procedure:

1. Approval from Appropriate Authorities in the Country of Incorporation [Rule 13(3)(a)]:
   Issuing company shall obtain the necessary approvals or exemptions from the appropriate authorities in the country of its incorporation under the relevant laws in respect of the issue of IDRs.
2. Obtain Approval from Securities and Exchange Board of India (SEBI) for Issue of IDRs [Rule 13(3)(b), 13(3)(c), 13(3)(e)]:
   Issuing company shall:
   • make an application, to SEBI, seeking approval for the issue of IDRs, at least 90 days prior to the date of opening of such issue, accompanied by draft prospectus, a due diligence report (through a Merchant Banker) and specifying the details of the issue size
   • incorporate the changes, if any specified by SEBI, within 60 days from the date of submission of such application or prospectus
   • pay an issue fee as may be prescribed by SEBI, upon receipt of approval.
3. File Prospectus with Securities and Exchange Board of India (SEBI) and Registrar of Companies (RoC) [Rule 13(3)(f)]:
   Issuing company shall:
   • file prospectus*, duly certified by two of its authorized signatories, one of whom shall be a whole-time director and other Chief Financial Officer, specifying the particulars of the resolution of the Board by which it was approved, with SEBI and RoC, New Delhi before such issue of IDRs
   • attach the below-mentioned documents, while filing prospectus with (RoC), New Delhi:
     • copy of approval granted by SEBI and
     • statement of fees paid to SEBI.
   * Note: The prospectus or letter of offer shall comprise of all the particulars as specified under sub-rule (8) of Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014 and Part A of Schedule VIII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
4. Appointment of Lead Managers, Other Intermediaries and Compliance Officers [Rule 13(3)(h), 13(3)(i) and Regulation 184]:
   Issuing company shall:
   • make the following appointments for the purposes of issue of IDRs:
     • One or more Merchant Bankers which are registered with the Board as lead manager(s) to the issue
     • Registrar to the issue which is registered with the Board, and has connectivity with all the Depositories
     • Compliance Officer who shall be responsible for monitoring the compliance of the securities laws and redressal of investors’ grievances
   • enter into an agreement with an Overseas Custodian Bank and a domestic depository for the proposed issue of IDRs
   • make arrangements for collection at centres as specified in Schedule XII (Mandatory Collection Centres) of the ICDR Regulations.
   Note:
   1. Issuing company may appoint underwriters registered with the Board to underwrite the issue of IDRs.
   2. Issuing company shall:
      • appoint Merchant Bankers or Stock Brokers, registered with the Board to act as underwriters in case it makes initial public offer of IDRs other than through the book building process. In case of book building process, the issue shall be underwritten by the lead manager(s) and syndicate manager(s)
      • enter into an underwriting agreement with the lead manager(s) and syndicate manager(s), prior to the filing of prospectus. [Regulation 198]
5. File Draft Offer Document and Offer Document [Regulation 186]:
   Issuing company shall:
   • before making an initial public offer, file 3 copies of the draft offer document with the Board, in accordance with Schedule IV (Filing of Offer Documents with the Board) of the ICDR Regulations, along with fees as specified in Schedule III (Fees to be paid along with Draft Offer Document/ Draft Letter of Offer or Offer Document) of the said regulations, through the lead manager(s). Such document shall also be furnished in soft copy to the Board
   • file an updated draft offer document highlighting all the changes made in the draft offer document, with the Board through the lead manager, prior to filing the offer document with the ROC
   • file copy of offer document with the Board and the Stock Exchange(s) through the lead manager(s) promptly after filing the same with ROC.
   Note:
   1. In case of any change in the draft offer document in relation to the matters specified in Schedule XVI (Nature of Changes in the Offer Document Requiring Filing of Updated Offer Document) of the ICDR Regulations, an updated offer document or a fresh draft offer document, as the case may be, shall be filed with the Board along with fees specified in Schedule III (Fees to be paid along with Draft Offer Document/ Draft Letter of Offer or Offer Document) of the said regulations.
   2. Issuing company may mention a price or price band in the offer document (In case of Fixed Price Issue) and floor price or price band in the Red Herring Prospectus (In case of Book Built Issue) and determine the price at a later date, before filing the prospectus with the ROC. [Regulation 189(1)]
   3. Issuing company shall announce such floor price or price band (in case of not make the disclosure of the floor price or price band in the red herring prospectus), at least 2 working days prior to the opening of the issue in the same newspapers in which the pre-issue advertisement was released or together with such pre-issue advertisement as per format given under Part A of Schedule X (Formats of Advertisements for a Public Issue) of the ICDR Regulations. [Regulation 189(4)]
6. Make Offer Documents Available in Public Domain for Comments [Regulation 187]:
   Issuing company shall:
   • make the draft offer document filed with the Board available for public comments, if any, for at least 21 days from the date of filing, by placing the document on its website along with the website of the Board, and Stock Exchanges where specified securities are proposed to be listed and also, of the lead manager(s) associated with the issue
   • make a public announcement disclosing the filing of the draft offer document with the Board and inviting comments from the public to the Board, the issuer itself or the lead manager(s) in respect of the disclosures made in the draft offer document, within 2 days of filing such draft offer document with the Board, in the following:
     • one English national daily newspaper with wide circulation and
     • one Hindi national daily newspaper with wide circulation.
   Note:
   1. Any advertisement released for opening and closing of the issue shall be in the formats specified under Part B and C of Schedule X (Formats of Advertisements for a Public Issue) of the ICDR Regulations.
   2. Issuer Company and the lead manager(s) shall ensure that the offer document and its contents are the same as the versions are filed with ROC, Board and the Stock Exchanges, as applicable.
   3. All the public communication, publicity materials, advertisements and research reports shall comply with the provisions of Schedule IX (Public Communications and Publicity Materials) of the ICDR Regulations.
7. Deliver Underlying Equity Shares [Rule 13(3)(j)]:
   Issuing company shall deliver the underlying equity shares or cause them to be delivered to an Overseas Custodian Bank, and such bank shall authorize the Domestic Depository for issuance of IDRs.
8. Issuance Conditions and Allotment of Indian Depository Receipts (IDRs) [Regulation 191, 192, 193, 194, 197, 200, 201, 202, 203, 204, 205, 209]:
   • Issuing company shall ensure the following:
     • indicate the procedure to be followed by each class of applicant for making application for the subscription of IDRs
     • minimum application amount is twenty thousand rupees
     • allocation in the issue is as under:
       • at least 50% allotment is made to Qualified Institutional Buyers on proportionate basis
       • remaining portion may be allocated amongst the categories of non-institutional investors and retail individual investors including employees subject to 30% of IDRs being offered in the public issue being available for allocation to retail individual investors
     • every application form is accompanied by a copy of abridged prospectus
     • bids are accepted only using the Application Supported by Blocked Amount (ASBA) facility
     • issue shall be opened within 12 months from date of issuance of observations by the Board and/ or be opened after at least 3 working days from the date of filing the prospectus with RoC
     • at least 90% of the offer through the offer document has been received
     • Initial public offer is kept open for at least 3 working days and not more than 10 working days
     • Allotment shall be as under:
       • Proportionate basis for allotment to applicants other than retail individual investors
       • Allotment to each retail individual investor to be not less than the minimum bid lot.
   • Issuing company shall deposit with the designated Stock Exchange, an amount calculated @1% of the issue size available for subscription to the public in the manner specified by Board and/or Stock Exchange(s), prior to the opening of subscription list.
   Note:
   1. Issuing company shall abstain from releasing any advertisement that gives an impression that the issue has been fully subscribed or oversubscribed or indicating investor’s response to the issue.
   2. Issuing company and the lead manager(s) shall ensure that the IDRs are allotted and/ or application monies are refunded or unblocked within the timelines specified by the Board.
   3. Issuing company shall report about the transactions in securities by the promoters and promoter group during the period between the filing date of the draft offer document or offer document, as the case may be, and the date of closure of the issue to the Stock Exchange(s) within 24 hours of such transactions.
9. Obtain In-Principle Listing Permission from Recognized Stock Exchange(s) [Regulation 183(3)(a) and Schedule XIX]:
   Issuing company shall:
   • make an application to one or more Stock Exchange(s) in India seeking in-principle approval for listing of its IDRs on such Stock Exchange(s) and chose one of them as the designated Stock Exchange
   • execute a listing agreement with such Stock Exchange in terms of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
   Note: In case the issuing company fails to obtain listing or trading permission from the Stock Exchange(s) where the specified securities were listed, it shall refund through verifiable means the entire monies received within 4 days of receipt of intimation from the concerned Stock Exchange(s) rejecting the application for listing of IDRs. [Regulation 208(2)]
10. Post Issue Compliances [Regulation 206]:
    • Lead manager(s) shall:
      • within 10 days from the completion of various activities, release an advertisement in at least:
        • one English national daily newspaper and
        • one Hindi national daily newspaper
        both having wide circulation, giving the details pertaining to subscription, basis of allotment, number, value and percentage of all applications including ASBA, number, value and percentage of successful allottees for all applications including ASBA, date of completion of dispatch of refund orders, as applicable, or instructions to self-certified syndicate banks by the registrar, date of credit of the IDRs and date of filing of listing application, etc.
      • within 7 days of the date of finalization of basis of allotment or within 7 days of refund of money in case of failure of issue, submit a final post-issue report on the lines of Part A of Schedule XVII (Formats of Post Issue Reports) of the ICDR Regulations, along with a due diligence certificate as per the format specified in Form F of Schedule V (Formats of Due Diligence Certificates) of the said regulations.
    • Proceeds of the issue of IDRs shall be immediately repatriated outside India by the companies issuing such IDRs. [Para 1.5 of Annexure 9 in Master Direction- Foreign Investment in India]
    • The number of underlying equity shares offered in a financial year through IDRs offerings shall not exceed 25% of the post issue number of equity shares of the company.
    • Issuing company shall comply with such continuous disclosure requirements as may be specified by SEBI in this regard.

Abbreviations Used:

1. IDRs – Indian Depository Receipts
2. SEBI – Securities and Exchange Board of India
3. ROC – Registrar of Companies
4. ICDR Regulations – SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018