The Securities and Exchange Board of India (SEBI) has dealt a blow to foreign investors with an announcement that Indian depository receipts (IDRs) cannot be redeemed into underlying equity shares unless the IDRs are infrequently traded on stock exchanges in India.
Previously, IDRs could be freely redeemed against the transfer of underlying equity shares, without the requirement of any prior approval from the RBI after the lock-in period had expired.
Now, even after the one-year statutory lock-in period has passed, IDR holders can only redeem equity shares if the IDRs are “infrequently traded” on stock exchanges. IDRs are considered infrequently traded if their trading turnover during the six months before the month of redemption is less than 5% of the listed IDRs.
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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.
