What's an IDR?
A foreign company issues and deposits new shares with an Indian depository (say, National Securities Depository Ltd (NSDL) or Central Depository Service Ltd or CDSL), Such a depository then, in turn, issues equivalent shares in rupees to investors in India.
Does the Instrument Break New Ground?
This is exactly the same way Indian companies like Infosys, Reliance and ICICI Bank raised money through Global Depository Receipts (GDRs) or American Depository Receipts (ADRs) in the past from global markets. India is just replicating this model to provide a window to global corporations to raise money from India and list on the domestic bourses. Standard Chartered Plc, the parent of Standard Chartered India, is the first global corporation to file an offer document with watchdog SEBI for its approval.
How Good Are These Companies as Investments?
There is a stringent set of criteria for a foreign company wishing to list in India: it must have a net worth of $100 million, an average turnover of $500 million in the last three years, have reported profits and paid dividends for the previous five years, and a debt equity ratio of not more than 2:1. Also, the issue size shouldn't exceed 15 per cent of the paid-up capital.
Why Will They Come to India?
It's a good way for foreign companies to raise capital in India, as more investors flock to the equity markets on the back of an economy that is likely to grow at over eight per cent. A listing here not only strengthens its brand presence, but also shows its commitment to India.
What's for the Investors?
It's an opportunity for Indian investors to take advantage of the growth opportunity in a global corporation. The shares can be bought and sold like any other on the Indian markets but come without voting rights. Investors can claim dividends and capital appreciation.
Does It Make Sense to Invest?
Not for small investors, as any investment in an overseas company requires research on its parent company and operations elsewhere. For instance, Standard Chartered's Indian operation reported profits of $1 billion in 2009, but this accounts for just 20 per cent of its global profit. In addition, investors also have to track the prices of the parent's share on global bourses where they are listed or in their home country.