With an aim to attract a large number of foreign companies to get listed in Indian stock market, Sebi today notified norms that will allow conversion of their Indian Depository Receipts (IDRs) on domestic bourses into equity shares by the investors.
"The Indian Depository Receipts shall be fungible into underlying equity shares of the issuing company in the manner specified by the Board and Reserve Bank of India, from time to time," Sebi (Securities and Exchange Board of India)said in a notification.
Fungibility refers to redemption or conversion of IDRs in underlying equity shares. The regulation comes into force with immediate effect.
The move is expected to help in attracting foreign companies to list their IDRs on domestic bourses. In August last year, Sebi had said investors would have partial flexibility in dealing with IDRs and can convert up to 25 per cent of their IDRs into underlying shares in a financial year.
In the 2012-13 Budget, government had proposed to allow two-way fungibility of IDRs to encourage greater foreign participation in the Indian capital market.
The two-way fungibility would enable Indian shareholders to convert their depository receipts into equity shares of the issuer company and vice-versa.
The fungibility issue is seen as one of the major factors restraining foreign entities from listing their IDRs. So far, only UK banking major Standard Chartered in 2010 has come out with their IDRs.