Standard Chartered Bank PLC would be listing its IDR’s today the 11th of June 2010. The bank had issued a total of 24 cr IDR’s with each IDR equal to 1/10th of a share. The price band was between Rs 100-Rs 115 and the price fixed was Rs 104. On the day of the closure of the issue the price on the LSE was 16.37 GBP which has of yesterday improved marginally to close at 16.49 GBP. Further the conversion or equivalent rupee rate to the pound which was Rs 67.5695 has further weakened to Rs 68.536. This effectively means that against an effective price of Rs 1106.11 on the day of closure of the issue, the price on the eve of listing of India’s first ever IDR the price has gained and is now equivalent to Rs 113.02.
This increases the premium of the IDR compared to the issue price of Rs 104 and would ensure that people should make a profit on listing and selling tomorrow. There are a few concerns on the IDR which need to be addressed straight away. Some of these concerns are as follows:-
- The IDR’s cannot be converted into equity shares until one year after listing on the exchange. This effectively reduces the arbitrage opportunity as it cannot be done for one year which is a long time.
- Large institutional players like insurance companies cannot invest in this IDR and this would make long term players participation a reason for lack of participation.
- Tax treatment of gains from IDR are not treated as shares and hence subject to tax at business rates. Also no securities transaction tax would be levied on the same.
The markets have had a strong showing today across the world whether it was Asia, Europe and the USA. In such a setting it is but natural that the share/IDR would list at a premium to the issue price. There is an important issue that only time will decide. Under the given circumstances where the IDR is not convertible to the underlying equity for one year from date, the IDR should trade at a discount to the underlying share. The question is what a fair discount is. I believe that we would establish a trend in some time but until that is done there could be a discount of 6 to 8% in the short run before some trend can be established. If one were to accept this to be a correct value then the likely trading price tomorrow could be anything between Rs 104 and Rs 106. This would mean that the IDR trades at a premium to the issue price of Rs 104 and the retail investor makes his 5% plus anything above Rs 5.
Today should be an interesting listing with India’s first IDR all set to trade on the BSE and NSE.