StanChart IDR discount narrows marginally

StanChart IDR discount narrows marginally

Standard Chartered Plc’s Indian depository receipts (IDRs) rose 5.5% on Wednesday after the Securities and Exchange Board of India (Sebi) allowed partial fungibility of such instruments. Sebi had said on Tuesday that IDR holders can convert these instruments into underlying equity shares and vice-versa to the extent of 25% of the IDRs originally issued in one fiscal year.

Needless to say, such artificial barriers affect price discovery and ultimately defeat the purpose of such instruments. Thanks to the policy flip-flops on IDRs, it is quite likely that Standard Chartered may turn out to be the first and last such instrument listed on Indian shores. At the time of the bank’s IDR launch, there was no inkling that fungibility would be an issue.

The ID have fallen about 2% since they listed at 103.5 on Indian exchanges. In the same period, the CNX Banking index has risen 6%. Standard Chartered’s underlying shares listed in London have fallen by 12% during the same period—but on conversion to Indian rupees, the underlying value of the shares have actually risen by 6%, in line with the rise in the sectoral index. But thanks to the fungibility issues, Indian investors have had to settle for an underperforming instrument.

Both the underlying shares and IDRs have recovered well after the bank agreed to pay $340 million to New York state’s bank regulator and settle a dispute over its transactions linked with Iran. When news of the regulator’s investigation hit the markets, the shares had dropped over 20%; but the stock has now recovered most of those losses.