Standard Chartered IDR: A time To Buy?

Standard Chartered IDRs have had a roller coaster ride on the Indian stock markets. The 24 crore issue was offered in May 2010 admist much fanfare as it was the first IDR (Indian Depositary Receipts) offer. 10 IDRs constituted one share and so, based on the prevailing market price of Stanchart’s London stock exchange price (about 17 Pounds), the IDR’s were priced at Rs. 107 each and Stanchart raised about Rs. 2,500 crores.

Since then the IDR issue has been dogged with bad luck. In June 2011, SEBI imposed a bar on redemption of the IDRs. As a result, the price plummeted 20%. Under the RBI regulations, an investor is permitted to convert his IDR holdings into shares, and subsequently sell them overseas after the expiry of 1 year after the issue date. However, just as the 1 year time limit was coming to a close, SEBI spoilt the party by stating allowing redemption, when fungibility is not permitted, would mean a lowering in the IDRs under circulation, lowering liquidity. So, it decided to allow redemption only when IDRs were infrequently traded.

That hangover ceased when the Budget 2012 when two-way fungibility in IDRs was permitted and so an investor could trade freely between the two exchanges on which a stock is listed and take advantage of any disparity in price between the two locations.
As the Standard Chartered IDR was trading at a 25 per cent discount to the stock price in London, a lot of investors rushed in to buy the IDRs.

Now, the bombshell: The New York’s state regulator accused Standard Chartered of hiding $250 billion in Iran-related transactions and threatened to strip the Bank of its state banking licence. The result: The IDR prices fell 20% to a low of Rs 83.55 on the BSE mirroring identical losses on the London exchange.

From a technical perspective, the steep gap down is damaging the stock because it has been in a range and was looking for a breakout. The trend is now definitely on the downside. Even on the fundamental side, there is nothing to write home about. Standard Chartered has had a ho-hum performance and nothing to get excited about.