The largest foreign bank in India, Standard Chartered Bank is all ready to become the first foreign company to list in India through an Indian depository receipts (IDR) issue. It will sell 240 million IDRs through a public issue opening on May 25. Ten IDRs will equal a share of Standard Chartered.
The bank expects to mop up around USD 500-750 million (Rs 22,500-33750 million) to expand its businesses globally.
Parties to the IDR issue include - issuer company, overseas custodian, the domestic depository and Registrar and Transfer Agent. Their roles are as under:
Issuer Company: It is a foreign listed company. The investor gets an exposure to the Global Company, so remember there is global risk. If Stanchart (Standard Chartered Bank) has a problem in any part of the world and the Stan C shares fall in UK, Indian IDR will fall.
Domestic Depository: Is a SEBI registered Custodian will issue the IDR and acts as a trustee for the IDR holders – for more details read the Deposit Agreement.
Overseas Custodian: Issuer Co issues shares to Overseas Custodian who holds it on behalf of the Domestic Depository on the basis of which the DD issues IDR in India. It is a foreign entity appointed by the DD
Registrar and Transfer Agent: Provides services to the issuer company, DD, and IDR holders in India. It does record keeping, coordinating corporate actions, handling investor grievances, etc.
Provides services like record keeping, co-ordinating corporate actions, handling investor grievances to issuer co, DD, IDR holders
Why is Stanci (Standard Chartered) taking the IDR route?
The fundamental rule goes thus….If `A` being a foreign company cannot list in India directly, it will take route of sharing the risk and rewards with Indian shareholders.
The logic of buying IDR of Standard Chartered Bank:
The very high price earning ratios of Indian banks is likely to be one the reasons which prompted Stan C to think of an IDR. Most of the revenues for Stan C come from Asia, it employs many Indians even internationally, and they have a fantastic client base in Asia. So they will lap it up in India hence they must be issuing shares. Also for the company the currency risk is reduced with the Euro not in great shape. In all, a win –win deal for all.
The risks involved are….
The very high price earning ratios of Indian banks is likely to be one the reasons which prompted Stan C to think of an IDR. Most of the revenues for Stan C come from Asia, it employs many Indians even internationally, and they have a fantastic client base in Asia. So they will lap it up in India hence they must be issuing shares. Also for the company the currency risk is reduced with the Euro not in great shape. In all, a win –win deal for all.
The risks involved are….
Well…each investment has its pros and cons assigned to it…..IDRs are not an exception. When you are investing you are exposing yourself to the global risk. But it like saying that our Indian markets are not impacted by the global economic environment. So, ideally speaking if you are ready to reap what it takes by investing in global company, IDRs are for you………….Happy investing !!!
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