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Foreign investors whose ability to bet on HDFC Bank has been hit after the limit for foreign holdings was reached, are looking abroad to play the same name.
American Depositary Receipts or ADRs of HDFC Bank, are trading at a double digit premium to local shares as foreign investors scramble to take positions through these instruments.
An ADR is a dollar-denominated security which can be traded on an American exchange. It can be used to take a position on a company from another country (such as India). Every ADR is equal to a certain number of shares of the underlying company. In the case of HDFC Bank, every ADR is equal to three shares in the bank.
The value of the HDFC Bank ADR was Rs 902 on Monday night, a 12.09% premium to the rupee value of the Indian share.
HDFC Bank has proposed to increase its foreign shareholding limit to 67.55% from about 51% currently. The Foreign Investment Promotion Board (FIPB) is yet to take a call on the issue.
Foreign institutional investors held 34.08% stake in the company as of March 2014. They also held 16.97% stake through depositary receipts.
