Mumbai: The first-ever issue of Indian depository receipts (IDRs) went down to the wire, with a late rush by institutional investors to bid for the receipts helping Standard Chartered Plc see the issue through despite a lukewarm response from retail investors.
Institutional investors bid for more than twice the number of shares on offer while retail investors subscribed to less than half the IDRs reserved for them.
The late arrival of institutional investors was anticipated since the Indian stock market regulator had mandated earlier this month that institutional investors have to make upfront payments for their entire bid amount in a public issue, thus making it unattractive for them to enter the bidding game early and locking in their funds for a few extra days.
Retail investors stayed away despite the fact that the IDRs offered them a rare opportunity to diversify their portfolio by owning a British bank that does most of its business in emerging markets.
“The retail participation was low mainly because it was a new instrument and the tax treatment was not equal as that in other conventional public issues for retail buyers,” said the executive director of a large bank-owned investment banking firm on condition of anonymity.
The qualified institutional buyer portion of the issue was oversubscribed 4.14 times. For 84 million IDR shares on offer in this category, bids were received for 348.4 million.
Of this, foreign institutional investors placed bids for 253.2 million IDRs, while banks bid for three million and mutual funds bid for 6.3 million.
Only a quarter of the shares available for retail investors were applied for. Only one-fifth of the employee portion got subscription.
An IDR is a financial instrument that is backed by the equity of a company based outside India. Ten Standard Chartered IDRs will be equivalent to one share of the bank.
The shares of Standard Chartered are listed on both the Hong Kong and London stock exchanges.
The bank had fixed a price band of Rs100-115 for each IDR. Most of the bids were received around the lower end of the band, between Rs100-104, according to National Stock Exchange data.
At 7pm IST, Standard Chartered shares on the London Stock Exchange were down 1.19%, at £16.62 (Rs1,127).
“The effective equivalent price of Standard Chartered Indian IDR works out to Rs114. Even if we assume that the final issue price will be in line with the Rs104 per IDR, as applied by the anchor investors, still there is a potential gain of Rs10 for investors,” said Jagannadham Thunuguntla, head of equities at SMC Capitals Ltd in New Delhi.
“We’re absolutely delighted with the response, given that this is a new instrument, given the fact that this was the first issue (in which institutional investors) had to put up 100% of the cost upfront, given that it’s difficult for domestic investors to put a comparative (value) to Standard Chartered Bank,” said Jaspal Bindra, chief executive of the bank’s Asian operations, at a media briefing.
Bindra said the bank should list its IDRs in the Indian market by around 11 June.
The IDR issue was also seen as a test case for the opening up of the Indian capital market to foreign companies. Till now, the traffic has been in the opposite direction, with Indian companies selling depository receipts in Europe and the US.
According to Thunuguntla, high networth individuals (HNIs) and companies would have rushed in on the last day as they sensed an arbitrage opportunity. The HNI/companies portion was oversubscribed nearly twice as bids were received for 82 million shares against 43 million on offer.
Standard Chartered sold 240 million IDRs. Of these, 36 million IDRs were placed with six anchor investors at a price of Rs104.
For the remaining 204 million shares for which the offer opened on 25 May and closed on Friday, bids were received for 449 million shares.