Standard Chartered raises $529 million from India listing

It took a little while to get the order flow going, but in the end, Standard Chartered attracted decent interest for its Indian depositary receipt offering despite the volatile markets and the fact that domestic insurance companies were prevented from participating. The offering was 2.2 times covered overall and a source close to the deal said the demand from high-net-worth individuals, domestic banks and mutual funds was particularly encouraging and might encourage other global corporations to take a look at whether they too might want to issue IDRs.

Standard Chartered was the first company to issue IDRs and will be the first foreign company to list in India once the deal has settled.

Most of the orders were submitted at a price at or below Rs104, which was in line with the price at which the bank sold a 15% stake to a group of anchor investors on Monday last week, before it opened the book to all investors. According to subscription data on the National Stock Exchange website, the deal was fully covered at a price of Rs105, but Standard Chartered still chose to fix the price at Rs104 to include more large buyers and also to take into account the choppy market conditions, which resulted in huge intraday price swings last week.

At a price of Rs104, the UK-based bank raised approximately Rs24.87 billion ($529 million) from the sale, after taking into account the 5% discount for retail investors. However, since the 30% retail tranche was only 25% covered, it had a negligible impact on the overall proceeds; without the discount the bank would have raised $530 million.

The final price represented a discount of about 9% versus Standard Chartered's closing price of £16.82 in London on Thursday, after adjusting for the exchange rate and the fact that 10 IDRs is equal to one common share. The discount widened slightly during the three-day bookbuilding from Tuesday to Friday last week (Thursday was a holiday) as the price of the common shares gained 4.3% versus the previous Friday's (May 21) close, which was used as the reference price for setting the IDR price range. That said, the price was very volatile and on Tuesday closed as low as £15.785 before starting to head higher.

The IDR price range was set at Rs100 to Rs115. Initially, the bottom of that range represented an 8.3% discount, while the top equalled a 5.5% premium.

The choppy markets likely contributed to the fact that most investors chose not to submit their orders until the very last day. But more importantly, this was the first offering completed under new rules that require institutional investors to pay the entire order amount at the time they submit their orders -- compared to a margin of just 10% previously. This meant that institutional investors were unwilling to put in their orders early and incur an extra two or three days of carry costs.

"Especially in India where there are no benefits for being an early bird since allocations are proportional, this means there are no incentives to come in early anymore," one banker noted.

Other types of investors also held off, perhaps watching what the other groups were doing or trying to get the maximum discount versus the underlying shares, and with one day left of the bookbuilding, the deal was only 16% covered.

Except for retail investors -- which have shown lacklustre demand in most major equity offerings this year -- the other categories of investors did come through on the final day, though. The 84 million IDRs (35% of the deal) that were targeted at qualified institutional bidders (QIBs) after deducting the anchor tranche, were 4.15 times covered, and the 20% tranche for corporate and high-net-worth individuals ended 1.9 times covered.

Insurance companies normally account for a large chunk of the QIB demand for Indian initial public offerings, and the fact that they were prohibited from participating would have reduced the amount of potential demand quite significantly. The insurers were kept away for technical reasons that had to do with their stricter investment criteria, according to the source, who said it would have taken a major legislative change to allow them to buy IDRs. However, a broader overhaul of India's insurance legislation is expected at some point so they may well be able to buy these instruments in the future.

Standard Chartered, which derives more than 90% of its revenues and profits from the emerging markets in Asia, the Middle East and Africa, sold a total of 240 million IDRs, including the 36 million IDRs that it placed with six mutual fund operators: ICICI, Birla, HDFC, Sundaram BNP Paribas, Reliance Capital and Franklin Templeton.

The deal was small as a portion of the company -- only about 1.2% -- but Standard Chartered has made it clear that it is not seeking this listing because it needs to raise capital, but rather as a way to raise its profile in India and show its commitment to a country where it has operated for more than 150 years.

The offering was arranged by DSP Merrill Lynch, Goldman Sachs, JM Financial, Kotak Mahindra, SBI Capital Markets and UBS. Standard Chartered's own Indian investment banking arm STCI Capital Markets was a co-bookrunning lead manager and Bank of New York Mellon has been appointed as the depositary receipt bank.