Standard Chartered, the only foreign entity listed on the domestic bourses by issuing Indian depository receipts (IDRs), saw a large number of institutional investors rushing to convert their IDRs into equity shares of the bank listed on the London Stock Exchange (LSE).
The bank had opened a fungibility window between May 31 and June 7, 2013, which saw the entire annual quota ? as per the regulatory guidelines ? getting exhausted.
?Based on the valid withdrawal orders received from the IDR holders… the company has redeemed an aggregate of six crore IDRs into six lakh shares of the company. The entire fungibility portion… has been satisfied in this redemption window and the company will announce the next redemption event in 2014,? stated an announcement on the stock exchanges.
The fungibility of IDRs refers to a framework that enables Indian shareholders to convert their depository receipts into equity shares of the issuer company.
In other words, StanC IDR holders can convert the depository receipts into shares of the London-listed Standard Chartered.
The rush for converting IDRs into equity shares can be primarily attributed to the arbitrage gains that exist due to the currency and swap ratio.
StanC IDRs are currently trading at R114.80 while the shares of StanC are priced at 14.49 pounds on the London Stock Exchange. With the ratio fixed at 10 IDRs for every one share of the bank, investors stand to make around 15% arbitrage gains by converting the IDRs into shares of the bank.
This also explains the reason for FIIs being the dominant shareholders of Standard Chartered IDRs. According to the latest disclosures, FIIs have increased their stake from 79.98% to 83.54% in the quarter ended March 31, 2013 even as mutual funds reduced their holding from 11.74% to 9.50%. Similarly, the stake of Indian retail public has gone down from 5.82% to 4.87%.
According to the latest shareholding pattern, there are a total of 34 FIIs holding IDRs of StanC.
The largest shareholders include Morgan Stanley Mauritius (11.39%), Merrill Lynch Capital Markets Espana (10.11%) and The Royal Bank of Scotland Asia Merchant Bank (9.37%).
Others including Macquarie Bank, Goldman Sachs, BNP Paribas, Credit Suisse, Deutsche Securities, Barclays and HSBC Bank all hold over 1% each.
