Mumbai: Standard Chartered Plc on Tuesday filed a draft prospectus to raise around $750 million (Rs3,368 crore) through an issue of 220 million Indian depository receipts (IDRs), the first such issue in the country. The bank which began the process about 18 months back expects to list its Indian shares by the end of June 2010.
Fund focus: Neeraj Swaroop, regional CEO of StanChart for India and South Asia. Abhijit Bhatlekar / Mint
Peter Sands, group CEO of Standard Chartered said: “Our intention to be the first company to list IDRs demonstrates how important India is to Standard Chartered. India is one of our largest and fastest-growing markets and achieved over $1 billion in profits in 2009.”
India is the second largest contributor to the group’s profitability, after Hong Kong, with profits of at least $1 billion. India’s share in the group’s profit in 2009 was 20.5%. The profits of the Indian arm were largely driven by wholesale banking operations, where profits grew to $1 billion; profits of the consumer banking operation fell by a quarter last year to $54 million, on account of rising bad loans.
“We are expecting to raise upwards of $500 million. The amount the bank raises through issue of IDR and the pricing will depend on market conditions and investor demand for the issue,” said Neeraj Swaroop, regional CEO, Standard Chartered Bank, India and South Asia. Investment bankers, however, say that IDR will be priced close to the prevailing market price of the listed share of Standard Chartered in London and Hong Kong.
The UK-based bank has appointed UBS Securities India Pvt. Ltd, Goldman Sachs (India) Securities Pvt. Ltd, JM Financial Consultants Pvt. Ltd, DSP Merrill Lynch Ltd, Kotak Mahindra Capital Co. Ltd and SBI Capital Markets Ltd as lead managers to the issue. “These institutions and brokerages will also purchase unsold shares of the issue,” said an investment banker at one of these firms, asking not to be identified. According to an investment banker at another of these firms the secondary market trading of IDRs will not attract securities transaction tax because the instruments do not come under the definition of the term securities. “However, the transaction will attract capital gains tax” of between 30% (short term, if IDRs are sold within a year of purchase) or 10-20% (long term) explained this person who did not want tot be identified. This distinction should not affect the issue, Swaroop clarified.
The issue would help the bank’s image, added Swaroop.
“As a bank this issue will increase the market visibility and brand perception of the company in India. Regulations are very clear there is no separate guidelines for foreign banks listed in India so it will not give us any regulatory advantage.”
In its filing, the bank said it would use the proceeds of the issue to support growth across the company’s businesses globally. “The current economic circumstances and related market dislocation have presented unique opportunities to deploy capital into selected areas where the competitive environment, pricing levels and returns are particularly attractive,” it added.
The listing will help investors diversify their portfolio, said Bobby Parikh, partner at tax advisory BMR and Associates. “Standard Chartered is one of the few banks who have come largely unaffected by the economic downturn and has a significant business orientation towards the Middle East, Asia and African markets.’’
Prithvi Haldea, chairman and managing director, Prime Database Ltd, a Delhi-based company that tracks primary market, said that while this issue provides “a good diversification opportunity for the investors,” in general, “only absolutely good quality companies should be allowed (to raise money) through this route. We are a capital starved country. Allowing too many IDR issues, may lead to flight of capital and drain the limited capital pool available to Indian companies.”
At 8.30pm India time, shares of Standard Chartered were down 1% to 1,774 pence on the London Stock Exchange.
N. Sundaresha Subramanian contributed to this story.