Standard Chartered Bank's forthcoming issue of Indian Depository Receipts (IDRs) will be widely watched not just because it is the first of its kind. Its success — defined in terms of a range of parameters, of which the extent of subscription is just one — will prompt other well-established global companies to tap the Indian market and mobilise rupee resources. The IDRs are very much like American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) in the way they are structured and regulated. Like them, the IDRs are created by a domestic depository against the underlying equity shares of a foreign company. The major difference of course is that they are denominated in rupees and issued by a foreign company, whose shares are listed in the country where it is incorporated. Also, it should have a track record of profitability and net worth of at least $50 million. Issued through public offerings, the IDRs are bound by the core rules and regulations prescribed by the market regulator, SEBI. The benefit to domestic investors is that they can trade in shares of well-known companies that are listed abroad.
In India, it has taken nearly six years — since the notification of the regulatory rules — for the first IDR issue to materialise. Standard Chartered Bank (SCB) has a long and well established presence in India and its familiarity and assessment of the domestic financial markets would have been the principal factors behind its pioneering role. There are other banks and companies with similar exposures to India and, for now, they prefer to wait and watch. It may seem fanciful now, but the expectation is that over the medium-term at least India will emerge as a major reservoir of capital that will attract resource-hungry corporates from around the world. For that to happen, Indian financial markets will have to integrate more with their global counterparts, through, for instance, a fuller convertibility of the rupee. However welcome that might be from the point of view of global markets, recent experiences have vindicated the Reserve Bank of India's measured approach to capital account convertibility. The SCB has said that the resources from the IDR issue will be used to beef up its capital adequacy. Such considerations are sure to weigh with prospective issuers, who might also seek to enhance their brand image through a listing in an important market. It is possible to reserve a portion of the IDR issue for employees, thereby boosting their morale. Finally, the resources garnered through an IDR can be utilised for acquiring companies in India.