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Sebi to allow full IDR fungibility--( for essay writing and general awareness)


The holders of Indian Depository Receipts (IDRs) ofStandard Chartered Plc could be in for a positive surprise in a few weeks. Market regulator Sebi is expected to announce some changes to the rules governing IDRs in India soon, which will have a positive impact on the listed instrument, a report by domestic broking major Edelweiss Securities said.

Since listing in June 2010, Stan C IDRs usually traded at about 5% discount to its listed shares on the London Stock Exchange(LSE), but after Sebi limited the fungibility options in IDRs, the conversion of IDRs into shares listed on LSE, and the vice versa, the discount had widened to as much as 60%. Lately, after the finance ministry asked Sebi to draft guidelines for fungibility, the discount has now narrowed down to 25%.

Edelweiss report pointed out that Sebi is taking feedback from the industry, by speaking to IDR holders, custodians, other regulators and market experts, and most of these feedbacks have been favouring free fungibility between IDRs and shares listed on a foreign bourse. "Regulators need to create a good example out of Stan C IDRs that will encourage other foreign companies to issue fresh IDRs. There is likelihood of Vodafone, HSBC and Citi taking the IDR route to tap Indian markets," Yogesh Radke and Sriram Velayudhan of Edelweiss wrote in the report.

The report further said that the best structure would be allowing 100% fungibility, which will narrow the spread and may result in no need for conversion by holders. "This will aid retention of equity on domestic bourses and narrow discount. Currently, insurance companies are not allowed to participate in IDR. If allowed, participants will increase in the IDR market," it noted.

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