SEBI lets IDR holders convert 25% into equity

Capital markets regulator Securities & Exchange Board of India has allowed the conversion of 25% of Indian depository receipts (IDRs) of a company into underlying overseas listed equity shares in any financial year, following a promise made by formerfinance minister Pranab Mukherjee.

The fungibility of these IDRs may help investors take advantage of higher liquidity in the home market such as London for Standard Chartered Bank, the lone IDR listed in India. It could also lessen the price differential of the IDRs in the Indian and London stock markets.

"Sebi's latest move may not have much of an impact as the market for IDRs is still at a nascent stage with StanC IDR being the only listed one," said Chokkalingam G, CIO, Centrum Wealth Management. "I don't think the market had a lot of expectations on the extent to which fungibility would be allowed."

During the presentation of the Union Budget for FY13, former finance minister Pranab Mukherjee had said that he would allow two-way fungibility of IDRs subject to a ceiling following complaints that the market depth for IDRs was not sufficient.

Standard Chartered IDRs gained 20% on the Indian stock exchanges the day it was announced. On Tuesday, it was down 1.2% at Rs 95.25 on the BSE. The regulator had declined to permit two-way fungibility saying that there was not enough trading volume in Standard Chartered IDRs and it would take a call on conversion after observing trading for a year. But the market reacted adversely to the regulator's decision forcing the then finance minister to yield to the demands of investors. (Economic Times)