FII Participation in Indian Depository Receipts

A recent post on this blog examined changes to the SEBI DIP Guidelines made with a view to promoting qualified institutional placements [“QIPs”], as a measure to address domestic economic concerns, by enabling greater access to funds. While this shortage continues to be a cause for concern for domestic companies, given the interest rate hikes and the global financial crisis; the Finance Ministry and the RBI have facilitated the participation of Foreign Institutional Investors [“FIIs”] in Indian Depository Receipts. Depository Receipts are negotiable financial securities that allow investors to hold equity shares in foreign companies. The proposal, which has been forwarded to the Ministry of Corporate Affairs for approval, would open the Indian markets for foreign companies looking for finance. Till date, only Persons of Indian Origin [“PIOs”] and resident Indians were permitted to invest in IDRs, while FII and Non-Resident Indians [‘NRIs”] require the permission of the RBI. The proposal has now opened the gates for FIIs and the issue of allowing NRI investment is also pending consideration. Admittedly, the move “could provide leeway for companies to shift their borrowings to currencies other than the dollar-dominant syndication markets and a way of avoiding intense currency fluctuations”. In the current state of global finance, and the reasons for its escalation, this appears to be a strong argument in favour of the move. However, given the concerns over availability of finances for domestic companies, with some IPOs being put-off or delayed on that account, the efficacy and wisdom of this proposal seems slightly suspect. The true implications, however, will only be seen in the days to come.

For a detailed report on the proposal, see For an overview of the concept of Depository Receipts, see

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