3rd UPDATE: Standard Chartered In Tepid Indian Debut; Regulations Weigh

11th Jun 2010 12:39

(Adds more background, closing share price.) By John Satish Kumar Of DOW JONES NEWSWIRES MUMBAI (Dow Jones)--Standard Chartered PLC (580001.BY) made a tepid stock market debut in India Friday as tax rules and regulations on investing in depositary receipts led to a weak investor response to the first local listing of a foreign company. The Indian depositary receipts of the bank closed at INR103.05 on the Bombay Stock Exchange, down 0.9% from their issue price of INR104, with almost 20 million receipts changing hands. They earlier opened at INR105 and traded between INR100.60 and INR108. In comparison, the benchmark Sensitive Index ended up 0.8%. The London-based, but Asia-focused bank last month raised INR24.96 billion ($531 million) by selling 240 million Indian depositary receipts as part of its efforts to increase brand visibility in India. Analysts and other market watchers viewed it as a test case for global companies seeking to tap the capital market in the second-fastest-growing economy after China. But, local insurance firms couldn't participate in the issue as they aren't allowed to invest in overseas companies. Also, retail investors were discouraged by India's rules on long-term capital gains tax. Investors in India don't have to pay tax on gains from holding local shares for more than a year. But, holders of depositary receipts won't get that exemption. "We feel that the probability of sizeable gains on listing seems to be limited... one needs to bear in mind the higher capital gains and dividend tax incidence on returns from IDRs compared with domestic shares," Tiju Samuel of HDFC Securities wrote in a note. Investors in the IDR would also lose out if the Indian rupee appreciates against the British pound, Samuel said. "The IDR product hasn't been understood by large sections of the investor community, so it will continue to trade at a discount of 5%-10% to its overseas prices," said investment adviser S.P. Tulsian. "Besides, retail investors have a view that taxation on this product is higher. So it deters appetite." A Standard Chartered spokesman said "the bank is very happy with the way the listing has gone and the share price level." The bank has said listing in India was meant to reinforce its market visibility and brand presence in the country, rather than to raise capital. Standard Chartered's shares were down 2.1% at GBP16.14 on the London Stock Exchange. Ten IDRs represent one Standard Chartered share. Tulsian expects the IDR to trade in a band of INR100-INR105 in the short term. During the subscription period, the issue had to endure tepid early response due to a regulation from May 1 that made it compulsory for institutional investors to pay upfront for the entire stake for which they have bid, instead of paying 10% previously. The offer received bids for only 11% of the issue size until the end of the third day. Though, the issue was finally subscribed about 2.2 times, most of the bids had come in the last few hours of the subscription period. Standard Chartered is India's largest international bank with 94 branches in 37 cities, around 2.0 million retail customers and more than 1,500 corporate and institutional relationships. The bank, which derives more than 90% of its income from emerging markets, received 12% of its income from India in 2009. The country contributed $1.06 billion of its $7.23 billion operating profit last year, ranking behind only Hong Kong. UBS Securities India Pvt. Ltd, Goldman Sachs (India) Securities Pvt. Ltd., JM Financial Consultants Pvt. Ltd., Bank of America-Merrill Lynch Ltd., Kotak Mahindra Capital Co., SBI Capital Markets Ltd. and Standard Chartered-STCI Capital Markets Ltd. were the managers of the issue. -By John Satish Kumar; Dow Jones Newswires; +91-22-61456118; [email protected] (Patricia Kowsmann in London contributed to this story.) (END) Dow Jones Newswires June 11, 2010 07:39 ET (11:39 GMT)