StanChart IDR vaults on fungibility nod

BANKING: IDR holders can now redeem these for underlying stocks listed abroad

The Finance Minister’s proposal to allow two-way fungibility in Indian Depository Receipts (IDR) came as a major boost to Standard Chartered Plc, the only company with depositary receipts in India.

Standard Chartered’s IDRs, which gained the most since its stock market debut in June 2010, ended nearly 20 per cent higher at Rs 93.8.

The FM, in his Budget speech, said he proposed “permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.”

Fungibility allows IDRs to be swapped for the underlying stock listed overseas. Current regulations don’t permit fungibility or redemption of IDRs into underlying equity shares unless they were illiquid.

Due to lack of fungibility, Standard Chartered IDRs were trading at a huge discount to its underlying shares listed in London and Hong Kong. Ten Standard Chartered IDRs equal one underlying share.

“We are in the process of seeking clarification on how exactly two-way fungibility will be permitted,” said Arijit De, a spokesman for Standard Chartered.

In May 2010, Standard Chartered had raised Rs 2,486 crore through an IDR offering. Since then, no other foreign company has issued IDRs due to the absence of two-way fungibility.