In the first-ever issue where a foreign company will sell Indian Depository Receipts (IDR) in the local market to raise capital, Standard Chartered Bank plans to raise as much as Rs 3,000 crore. Its proposed IDR issue has been delayed by years partly due to lack of regulatory clarity and state of domestic markets which has turned for the better over the last twelve months.
The UK-based bank, in which Singapore’s sovereign wealth fund owns around 18% stake, may dilute about 1.3% of its capital. However, as Neeraj Swaroop, regional CEO, India and South Asia, StanChart, said the issue is not just to raise cash but also to build its brand in a country that contributes around 20% of its earnings.
Till date, Indian companies used to issue ADR and GDRs in the US and Europe respectively to raise cash and bring foreign investors into its fold. These receipts would be traded on the Indian bourses with StanChart’s London-listed shares as the underlying security.
StanChart shares last traded at £17.8, or Rs 1,210 a piece (after converting pounds into rupees) on Tuesday. However, the pricing of IDRs is expected to be much lower to attract more investors that would mean each UK listed share would be equal to a number of IDRs. For instance, if the pricing is fixed at around Rs 200 then six IDRs will be equal to one common share.
UBS, Goldman Sachs, JM Financial Consultants, DSP Merrill Lynch, Kotak Mahindra Capital and SBI Capital Markets will lead the sale of 220 million IDRs. The pricing would be decided after the shareholders meet on May 7.
StanChart is presently valued at $55 billion, or almost double that of State Bank of India. The UK bank that opened its first branch in Kolkata in 1858, has over the last few years given up the baton of being the top international bank in the country to Citibank.
StanChart’s global profit increased 13% to $5.1 billion in 2009, driven by Indian operations. Profits from India, boosted from corporate clients, rose to $1.06 billion for 2009, from $891 million a year ago.
One big difference for those investing in the IDRs would be the fee that would need to be paid for any share action like dividend payments, share sale or purchase, as a custodian will be holding shares on behalf of the investors and serve them. IDR holders will be charged a fee of maximum $0.016 per share and that amount will be deducted by the depository from each cash dividend, or other cash distribution, as per the offer document. During rights issue, any free distribution of shares or stock dividend, receipts holders will have to pay a fee determined by the depository to reflect costs and expenses.