India: Standard Chartered pioneers IDRs
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CAPITAL MARKETS

India: Standard Chartered pioneers IDRs

Market demands reform if IDRs to flourish; Tax, regulatory hurdles to be tackled

Standard Chartered’s Asia CEO Jaspal Bindra and CEO Peter Sands at the IDR launch in Mumbai

Standard Chartered’s Asia CEO Jaspal Bindra and CEO Peter Sands at the IDR launch in Mumbai

On May 28 Standard Chartered became the first company to successfully issue Indian depositary receipts (IDRs), taking advantage of regulations that had been in place for years but had not been used. These allow international companies to list in India. Although after a slow start to the bookbuilding process the issuance was a success. Sources in India say, however, several key changes are required to the regulation of IDRs before other issuers might be tempted to follow suit.

Chief among these is the regulation that prevents insurance companies, one of the most significant groups among the domestic investors base, from buying IDRs. IDRs are classed as overseas securities, an asset class that Indian insurance firms are not allowed to invest in. Since the Insurance Act that contains this restriction did not foresee the possibility of IDRs, changing this situation would require an overhaul of the law.

Retail investors, who in any case had been reluctant buyers throughout the first half of the year after suffering losses in the financial crisis, were also dissuaded from participation in Standard Chartered’s offering by another instance of the existing regulations not accounting for IDRs.

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