In what could be termed as one of the rare notifications – related to the IDR Rules 2004 – passed by the government in as early as 2004, but gets tapped by an overseas company only after 6 years of notification of the law, in 2010 now.
The UK-based Standard Chartered Bank has filed a draft red herring prospectus with the SEBI with plans to raise up to $750 million, in a first of its kind by any overseas company through the sale of Indian Depository Receipts (IDR).
The amount to be raised by the company would depend on the market conditions and investor appetite, with a minimum mandate to raise $500 million. The company is likely to issue 22 crore IDRs to raise the said amount ($500-750 million).
Neeraj Swaroop, the Regional Chief Executive – India and South Asia for Standard Chartered said,
“We are doing this not for raising capital, but for building our presence and brand in India. Having said that, the minimum that is required to maintain liquidity in this instrument is $500 million. So we will raise enough capital for liquidity. Beyond that we will see what the market conditions are and decide on the exact quantum (of the issue).”
Under an IDR, a foreign company issues the depository receipts for raising funds from the Indian markets. The company has to file for a draft prospectus with the SEBI. The shares underlying the IDR have to be deposited with an overseas custodian who will hold shares on behalf of a domestic depository.
The holders of the IDR will own the underlying shares of the Standard Chartered Bank and trade in them once such depository receipts are listed on the stock exchanges.
Until now, Indian companies were actively involved in raising funds through Global Depository Receipts (GDR) and American Depository Receipts (ADR) offerings denominated in foreign currencies.
But, this is a first instance that a foreign company is coming to India in order to raise funds from the Indian market through issue of IDRs. The listing of IDR would also enhance the company’s visibility, brand profile and strengthen its presence in India.
This first instance of fund raising by the foreign bank could further pave the way for more overseas companies, with increasing fund appetite, to knock the doors of Indian markets through IDR route. The Indian government had notified the rule for the IDR issue way back in 2004.
Since foreign companies cannot list its shares in India, IDRs could be a good medium for Indian investors to take part in the story of a foreign company’s growth, desirable to raise funds through IDR route. Eventually, investors can hold shares of the foreign company after certain due date.
Will this issue open the flood gates for other foreign companies to follow the suit?