IDR Indian Depository: Receipts

IDR
Indian Depository Receipts
Group No 10
Mugdha Apte
Kavita Mansukh
Neeraj Karnani
Navin Chandnani
Ranjith Radhakrishnan
What is IDR?
 An IDR is an instrument denominated in Indian Rupees in the form of

a depository receipt created by a Domestic Depository (custodian of
securities registered with the Securities and Exchange Board of India)
against the underlying equity of issuing company to enable foreign
companies to raise funds from the Indian securities Markets.
 An IDR is a way for a foreign company to raise money in India. In an

IDR, foreign companies would issue shares, to an Indian Depository,
which would in turn issue depository receipts (IDR) to investors in
India. The actual shares underlying the IDRs would be held by an
Overseas Custodian, which shall authorize the Indian Depository to
issue the IDRs. To that extent, IDRs are derivative instruments
because they derive their value from the underlying shares.
What is IDR?
 IDRs give the holder the opportunity to hold an interest in equity
shares in an overseas company. IDRs are denominated in Indian
Rupees and issued by a Domestic Depository in India. They can be
listed on any Indian stock exchange. In other words, what
ADRs/GDRs are for investors abroad with respect to Indian
companies, IDRs are for Indian investors with respect to foreign
companies.
 Standard Chartered PLC became the first global company to file for
an issue of Indian depository receipts in India.
 Each IDR represents proportional ownership interest in a fixed

number of underlying equity shares of the issuer company. For
example, in the recently concluded IDR issue of Standard Chartered
Bank, 10 IDRs represent 1 equity share of the the Bank.
Who’s Eligible to Issue an IDR?
 Capital : The overseas company intending to issue IDRs should have
paid up capital and free reserve of atleast $ 100 million.
 Sales turnover : It should have an average turnover of $ 500 million
during the last three years.
 Profits/dividend : Such company should also have earned profits in
the last 5 years and should have declared dividend of at least 10%
each year during this period.
 Debt equity ratio : The pre-issue debt equity ratio of such company
should not be more than 2:1
Who’s Eligible to Issue an IDR?
 Extent of issue : The issue during a particular year should
not exceed 15% of the paid up capital plus free reserves.
 Must be listed in home country.
 Must comply with any additional criteria set by SEBI.
 Must have a good track record with compliance with
securities market regulations.
How will IDR’s be issued? Who can
participate?
 IDRs will be issued to Indian residents in the same way as domestic
shares are issued. The issuer company will make a public offer in
India, and residents can bid the same way as they do for Indian
shares
Participants:
 Qualified Institutional Buyers (QIBs)
 Non-Institutional Investors (NII)
 Corporates and High networth Individuals (HNIs)
 Non-resident Indians, retail Individual Investors and employees can

participate in IDR issue.
 Commercial banks may participate subject to approval from the RBI.
Minimum and Maximum limits of bids in
an IDR issuance.
 Retail Investors: Minimum of Rs 20,000 and maximum of
Rs 100,000.
 NII: Non-institutional investors have to invest above Rs
100,000 up to the issue size.
 QIBs: Institutional investors above Rs100,000 up to the
issue size.
 No IDR holder can individually own more than 5% of the
total IDRs issued except for QIBs which can hold up to
15% of the IDR issued.
How are IDR’s Taxed
 Dividend tax : This will be assessed at 30% (plus 10%
surcharge) on all the dividends you get from these IDRs.
 Short term capital gains : On Indian stocks, the short
term capital gains is charged at 15% plus surcharge,
however in the case of IDRs, the short term capital gains
will be charged at 30%.
 Long term capital gains: Investors will need to pay a 20%
long term capital gains plus 3% surcharge on IDRs.
 Securities transaction tax (STT) is not applicable on
trading of IDRs and thus capital gain transfer of IDRs will
be applicable.
Benefits/Limitations of IDR
Benefits:
 Indian investors gets chance to invest in foreign
entity.
 Easier Access to IDR’s than shares.
 Benefits of shares accrue to IDR’s also.
 Diversify holdings across regions
 Reserve a proportion for employees

Benefits/Limitations of IDR
Limitations:
 Fungibility.
 Tradability of IDR’s.
 Voting Rights
 Taxation
 Currency Risk
Case Study on Standard Chartered IDR.
 Standard Chartered plc is the first foreign company to have publicly
elicited interest in making an IDR issue in India. The company is
already listed on the London and Hong Kong stock Exchanges.
 In 2009, India contributed over 20% in its total operating profit. Out
of a total operating profit of $5.15 billion, India contributed $1.060
billion as against $1.062 billion from Hong Kong
 Standard Chartered Bank (SCB) took about 18 months of planning

before coming out with its Indian depository receipt (IDR) issue and
creating history in the Indian capital markets on May 25, 2010.
 StanChart expected to raise around $500-750 million (Rs 2,250-3375
crore) to grow its businesses globally.
 The price band for the offering was100 (£1.47; $2.10) to 115 rupees
per IDR. The bank, which makes most of its profits in Asia, issued 240
million IDRs through the offer.
 Standard Chartered fixed its issue price for Indian Depository

Receipts at Rs 104 per unit. At this issue price, the bank raised Rs.
2,490 crore ($530 million) by selling 24 crore IDRs.
 Every 10 IDRs represents one share of the bank.
 The IDRs opened at the Bombay Stock Exchange and National Stock
Exchange on June 11 2010.
 Standard Chartered PLC’s Indian Depository Receipt, listed at Rs 106,

exceeded expectations by Rs 2 or 1.92 per cent on the National Stock
Exchange.
 Current market price as at 11th Feb 2011 = Rs 112.55
 Investors profit = 8%
FIXER
 A willing conduit (Medium) between promoters of companies and fund
houses, enabling them to do deals that are not on the right side of the law.
 He is also a broker that trades in grey market for IPO and runs a thriving
front running operations on behalf of fund manager and dealers who
execute trades for their institutional clients.
 Front running – Buying stocks from the tip received from fund manager
before fund houses buying the same stocks. Eg : If the fund manager of SBI
Mutual Funds tips me that they are going to buy Infosys shares I will put in
my bid a few paise over the order and corner myself first. The stock prices
reacts once SBI buys shares and that time I square of my position for a
profit. The dealer/fund managers also gets his cut.
FIXER
 Promoters often hold more shares than what have been disclosed to
stock exchanges. These are held in Beenami account. Fixer helps the
promoters to sell these shares to such “friendly” fund houses that
are looking to buy large chunk of stock.
 Fund houses get the shares at low price then what they would have
purchased from the market and promoters get the cash.
 Once these fund houses sell these shares the same promoters buy
those shares in small tranches through a clutch of investment firms.
FIXER
 Grey market prices can never be set without the participation of
either the issue manager or the promoter,” who has been active in
the grey market for the past three years. This is why grey market
quotes are available even before a company has finalised its IPO
price-band.
 The banker or a company insider calls up a grey market broker and

places a buy order for a small chunk of shares at a rate above the
likely issue price. This rate then becomes the benchmark for future
trades in the grey market.
 Fixer uses code languages and all this deals are done in good faith
without any documentation.

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IDR

Indian Depository Receipts

 An IDR is an instrument denominated in Indian Rupees in the form of

 An IDR is a way for a foreign company to raise money in India. In an

 Each IDR represents proportional ownership interest in a fixed

 Non-Institutional Investors (NII)

 Corporates and High networth Individuals (HNIs)

 Non-resident Indians, retail Individual Investors and employees can

 Benefits of shares accrue to IDR’s also.

 Diversify holdings across regions

 Reserve a proportion for employees

 Standard Chartered Bank (SCB) took about 18 months of planning

 Standard Chartered fixed its issue price for Indian Depository

 Standard Chartered PLC’s Indian Depository Receipt, listed at Rs 106,

 Current market price as at 11th Feb 2011 = Rs 112.55

 The banker or a company insider calls up a grey market broker and

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