Mumbai: UK-based bank Standard Chartered Plc may become the first foreign entity to list in India, giving local investors the opportunity to invest in an overseas firm.
“The bank is actively considering a listing of its shares in India via an issue of Indian Depository Receipts (IDRs) in order to grow brand presence and its business in this key market,” Peter Sands, group chief executive, said on Thursday in a statement. “We are working with the Indian authorities and a decision on timing will be taken in due course.”
The move, if approved by the bank’s board, will make it the first foreign entity to use the IDR route and raise capital in India. It would be a test case of Indian investor demand for shares in an overseas firm.
Local flavour: Chief executive Peter Sands says the move is aimed at increasing brand presence in India. Jerome Favre / Bloomberg
An IDR is a financial instrument similar to a global depository receipt (GDR) and American depository receipt (ADR), the objective of which is to provide a platform to foreign firms to directly raise capital in India. For Indian investors, IDRs would provide a route to invest in foreign firms.
“The significance of this lies at two levels. First, Indian citizens will be able to easily improve their portfolio diversification. Second, this represents export of financial services from India,” said Ajay Shah, senior fellow at the National Institute of Public Finance and Policy. “When a foreigner decides to buy or sell a global security that is traded in India, we will be in direct competition with global markets. For the first time, we will now be competing in finance on the global landscape.”
Since 2007, India has been a key market for the bank and is now the second largest contributor to the bank’s profits after Hong Kong, adding 19% to the bank’s profit in the first half of 2009. At 24%, India’s wholesale banking operations are the largest contributor to the lender’s global revenue. Operating profit from its India operations declined 13.20% to $526 million (Rs2,498.5 crore) for the half year ended June 2009.
“The bank has received the Reserve Bank of India (RBI) approval for the IDR. However, it is now in dialogue with the Securities and Exchange Board of India (SEBI),” said a senior official from Standard Chartered Bank who did not want to be identified because he is not authorized to speak to the media. “The bank would be raising anywhere close to $500 million,” he added.
A Standard Chartered India spokesperson refused to comment on the amount and possible timing of the IDR sale.
Sands said in his statement. that the group was also exploring the possibility of listing in China. The bank is currently listed in the UK and Hong Kong.
In its third quarter earnings statement for calendar 2009 released on Thursday, the bank did not provide any numbers but said its key wholesale division—which caters to corporations, other banks and government agencies—had posted a continued strong income performance.
The bank, which has been in India since 1858, has 90 branches nationwide, with a retail customer base of about two million, and has received approval from RBI to open four more branches.
RBI in July issued guidelines to facilitate global firms to raise capital from India through IDRs. According to RBI, IDRs would have to be sold in Indian rupees and the proceeds remitted immediately. Investors will also not be allowed to convert them into equity shares until at least a year from the the date of issue.
In line with the Foreign Exchange Management Act of 1999, RBI has permitted foreign institutional investors, including their Sebi-approved sub-accounts, and non-resident Indians (NRIs) to invest in, purchase, hold and transfer IDRs. NRIs will need to invest in the IDRs using funds held in their non-resident external and foreign currency non-resident accounts with banks.
Anup Roy and Reuters contributed to this story.