Standard Chartered Bank has started the process to raise around Rs 5,000 crore through an Indian Depository Receipts (IDR) issue in the local markets.
The bank has appointed JM Financial and UBS AG as lead managers for what could be the first IDR issue by a global player. Goldman Sachs, Bank of America and Kotak Mahindra are the other banks appointed to manage the issue.
Asked about the IDR, a Standard Chartered spokesperson said, “India is a key market for us. We continuously evaluate options in line with our strategies and ambitions. Listing in India is a possibility we are looking at but it’s still at a very early stage.”
A banker involved in the process said the timing will depend on market conditions. Another banker confirmed that the issue size would be “in the region of $1 billion” (Rs 5,000 crore), though nothing has been finalised yet.
Like American or Global Depository Receipts (ADRs), where Indian companies raise resources overseas, IDRs enable foreign companies to do the same from India. ADRs or IDRs are derivative instruments that derive their value from the shares deposited with custodians. The foreign company will deposit shares with a custodian, who will issue depository receipts based on these shares. The receipts are based on the ratio of how many shares equal a depository receipt.
The government notified the IDR rules in 2004, but rules from the Securities and Exchange Board of India (Sebi) have also been in place for a number of years.
Sebi guidelines permit companies that are listed in their home market for at least three years and have been profitable for three of the preceding five years to issue IDRs.
The company’s pre-issue paid-up capital and free reserves must be at least $50 million and the minimum average market capitalisation during the last three years in its parent country $100 million or more.
The appointment of advisors by Standard Chartered comes just 10 days after Sebi amended the rules to increase liquidity by allowing foreign institutional investors and mutual funds to invest in IDRs. Initially, only Indian investors could invest in these issues.
There are, however, tax-related issues and quarterly reporting norms in India that could hinder the process. Standard Chartered,which is listed on the London Stock Exchange and the Hong Kong Stock Exchange, sees the quarterly reporting norms as adding to cost.
The bank has been considering an IDR issue for a while, but was deterred by the volatility in the stock markets. In recent weeks, however, markets globally are being seen to be in revival mode. Yesterday, Adani Power said it had filed afresh for an initial public offer to raise up to Rs 2,000 crore.
For Standard Chartered Bank, India accounted for around 21 per cent of the group’s profit of nearly $4.5 billion in 2008. India reported operating profit of $943 million for the year-ended December 2008, 37 per cent higher than the previous year. In 2008, Standard Chartered India was the largest contributor to the group profits after Hong Kong. India was also the bank’s fastest growing market after Singapore.