IDR holders to get StanChart issue proceeds

Holders of Standard Chartered’s Indian depository receipts (IDRs) cannot participate in the bank’s £3.25-billion rights issue, but will be entitled to proceeds from the share sale, the lender has said.

Separate pools of shares will be created for shareholders from five markets, including India, the US, Canada and Switzerland, who are barred from participating in the issue.

For IDR holders, the pool contains three million shares. Stanchart is offering shares at £12.8 a piece, which represents a 33 per cent discount to the bank’s closing share price of £19.085 on Tuesday in London. Once the rights issue is complete, the depository will sell IDR holders’ pool of three million shares, presumably at a premium to the rights issue price, in the open market.

The gains made from this sale over and above the issue price of £12.8 will be passed on to the IDR holders in proportion to their holdings.

The bank has set October 25 as the record date for entitlements of IDR holders. Since the UK-based lender plans to offer one share for every eight shares, IDR holders are entitled to one new share per 80 IDRs held on the record date.

However, IDR holders with less than 80 units are not entitled to new shares, according to the bank’s statement to the Bombay Stock Exchange (BSE).

At 6.06 pm IST, the shares were down 39 pence, or 2.04 per cent, at £18.69 on the London Stock Exchange. The bank’s IDRs fell 2.29 per cent from the previous close on BSE to end the day at Rs 117.45.

StanChart said there were many reasons for barring IDR holders from the issue. “There were certain limitations on the ability of the company to make a rights issue available to holders of IDRs because of the potential application of certain provisions of Indian law, compliance with which would not be possible within the timeframe. Additionally, there is no framework under which an IDR rights issue can take place,” the bank said in the BSE filing.

Also, the rights issue has an offer period of 10 business days, which is shorter than what applies to Indian rights offers.

Lastly, the issue was being launched on the basis of an offer document, which would not meet India’s disclosure standards, said the bank.