MUMBAI: A year after the Sepoy Mutiny, British bank Standard Chartered set up its first Indian branch in Calcutta in 1858 to cash in on the flourishing trades in rice, jute and indigo. Today, 150 years later, the bank is looking to ride the Indian stock market.
The emerging market biggie, also the foreign bank with the biggest presence in India, is looking to list itself on Indian stock exchanges. It could well be the first MNC to issue Indian Depository Receipts (IDRs)—securities that can be traded in the local stock market. The plan could partly be driven by banks in India fetching a better stock market valuation.
If its India plans go through, this would be StanChart’s third global listing after the UK and Hong Kong. India, incidentally, is the bank’s second biggest money-spinner, contributing 17% of its profits. And StanChart’s plans may also draw some of the other global firms to float IDRs—a market that is yet to take off. Initially, StanChart was thinking of listing its Indian operations after converting the branches into a subsidiary. However, this was not pursued due to the costs involved and absence of tangible regulatory benefits.
The emerging market biggie, also the foreign bank with the biggest presence in India, is looking to list itself on Indian stock exchanges. It could well be the first MNC to issue Indian Depository Receipts (IDRs)—securities that can be traded in the local stock market. The plan could partly be driven by banks in India fetching a better stock market valuation.
If its India plans go through, this would be StanChart’s third global listing after the UK and Hong Kong. India, incidentally, is the bank’s second biggest money-spinner, contributing 17% of its profits. And StanChart’s plans may also draw some of the other global firms to float IDRs—a market that is yet to take off. Initially, StanChart was thinking of listing its Indian operations after converting the branches into a subsidiary. However, this was not pursued due to the costs involved and absence of tangible regulatory benefits.
The bank has already sounded out market regulator Sebi for the IDR listing, sources told ET. The StanChart management will take a final call in the next few months. In the long run, a listing may give the bank more room to pursue M&A deals in India when the market opens up. Besides, it could also give the bank a branding edge.
According to the IDR guidelines that were revised last year, the eligibility factor requires the issuer to make profits for at least three of the five preceding years. It should also have a continuous trading record for the three preceding years. StanChart reported pre-tax profits of $4.03 billion for 2007.
The Indian operations, the biggest after Hong Kong, had posted a 71% growth in operating profits to $690 million in 2007. StanChart has the largest branch network among foreign banks with 90 offices, having invested $1.9 billion in India. Globally, the bank boasts of a $52.4-billion market cap and assets of $329 billion.
When contacted, a StanChart spokesperson from the UK said, “India is a key market for Standard Chartered. We have 150 years of history and continue to invest in our business there. In terms of specifics, we will not comment on speculation.”
Last year, while speaking at the ET Awards ceremony, StanChart group CEO Peter Sands had said, “I would love to have the cost of capital implied by the P/E ratings of the Sensex or the Shanghai Stock Exchange! If anything, the cost of capital is arguably now a disadvantage for Western multinationals.” Incidentally, Mr Sands has applied for a Person of India Origin status. However, StanChart has to think through certain local regulatory needs before pursuing IDRs. For instance, the bank announces its financial results every six months in markets like the UK, as against listed entities in India that must do so every quarter. Also, laws will have to be changed to allow capital gain tax benefits as IDRs have not been included in the definition of ‘securities’. Besides, the bank should have the flexibility to repatriate the money raised through listing. According to a senior investment banker, “Many companies are waiting for the first deal to happen. We have received enquiries from some MNCs with significant presence in the country. Though these are not the Fortune 100 companies, they are big corporates with billions of dollars of revenue.” |
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It is indeed a first of firsts for the Indian stock market. The fact that StanChart is choosing to list in Indian market at a time when there is so much concern about success of IPOs, speaks volumes about the potential of Indian markets and the potential for Indian economy. This is also a thumbs up for a strong legal and regulatory system that India has managed to create in the capital markets. However, eventhough it is going into new a totally new arena, SEBI will have to ensure that this offer sails through with the least of ambiguities (both short term and long term). This is also a step towards making of Mumbai into an international financial hub.
Vj
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