Mumbai: Investment bankers handling the Indian depository receipt (IDR) issue of Standard Chartered Plc (StanChart) have begun talks with foreign institutional investors as well as domestic banks and mutual funds as part of an effort to place a portion of the IDR with anchor investors ahead of the public float.
An anchor investor is one who invests in an issue ahead of others and whose name and reputation provides subsequent investors a degree of confidence. Anchor investors are allowed to buy up to 30% of the portion of any float that is kept for qualified institutional buyers (QIBs). At least 50% of the IDRs is to be subscribed by QIBs (banks and finance companies).
“We’ve met around 50 potential anchor investors so far, but nothing can happen till the capital market regulator clears the bank’s application for IDR,” said one investment banker handling the issue. According to him, the size of the IDR will be at least $750 million (around Rs3,370 crore).
Another investment banker associated with the issue named some of the potential investors who have been met: Franklin Templeton Investment Management Ltd-owned Templeton Emerging Markets Fund, Fidelity International, Birla Sun Life Asset Management Co. Ltd, ICICI Prudential Asset Management Co. Ltd, FIL Fund Management Pvt. Ltd, Franklin Templeton Asset Management (India) Pvt. Ltd, State Bank of India, Punjab National Bank, Indian Overseas Bank and United Bank of India.
Mint did not reach out to these entities. Neither of the investment bankers wished to be identified.
The plan is to open the issue in the last week of May, provided the Securities and Exchange Board of India (Sebi) clears it in the next few days. Standard Chartered Bank’s application for the IDR issue is with the regulator.
A StanChart spokesperson said: “We have filed the DRHP (draft red herring prospectus) with Sebi and will decide whether and when to launch the offer in due course, subject to market conditions and any necessary approvals. We cannot comment further on any of your speculation on the issue.”
Placing a part of the issue with anchor investors is critical for the bank as the larger investor community in India is not too familiar with the global balance sheet of the bank. “This will help in price discovery,” said one of the two investment bankers cited.
An IDR is a rupee-denominated instrument in the form of a depository receipt created by a domestic depository against the underlying equity of the issuing company. This is to enable foreign firms to raise money from the Indian markets.
Any firm with a paid-up capital and free reserves of $50 million and average market capitalization of $100 million in its parent country can get IDRs listed in India. The minimum application amount in an IDR is Rs20,000.
This will be the first IDR and may open up the gate for many such issues.
The IDRs will allow investors to get a share of the profits made by the firm in the form of dividends and will make it possible for the company to offer locally listed stock to staffers as part of the employee stock option plan. “This could be a very critical factor prompting many foreign companies to go for IDRs in India,” said the company secretary of a multinational firm in Mumbai, who did not want to be identified.
While the price band for the IDR will be decided two days ahead of the issue’s opening, investment bankers said it is likely to be priced at a discount to the price of StanChart’s shares on the London Stock Exchange to incentivize Indian investors. Shares of Standard Chartered were trading 3.92% down at £16.68 on the London Stock Exchange at 14.45 local time there.
UBS Securities India Pvt. Ltd, Goldman Sachs (India) Securities Pvt. Ltd, JM Financial Consultants Pvt. Ltd, Bank of America Merrill Lynch Ltd, Kotak Mahindra Capital Co. Ltd and SBI Capital Markets Ltd are the investment bankers to the issue.
India is the second largest contributor to StanChart group’s profitability, after Hong Kong, with profits of at least $1 billion. India’s share in the profit in 2009 was 20.5%.
Driven by strong commercial and investment banking businesses, StanChart posted record first quarter earnings in calendar year 2010. According to a Reuters report, StanChart’s wholesale banking income rose by around 20% in the first quarter of 2009 and contributed in excess of 80% of the unit’s revenue.
StanChart had record annual profits of $5.15 billion last year, up 13% from the year ago.
The profit of the Indian arm was 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.