Why there is sudden rush for StanChart IDRs

Standard Chartered plc will open a window from May 31 to June 7, 2013 where Indian Depository Receipt (IDR) holders can convert their holding into shares of the company. A foreign company can access Indian securities market for raising funds through the issue of Indian Depository Receipts and StanChart is the only foreign company that has issued IDRs.

Many of these investors have been holding the IDRs for more than a year, when the arbitrage opportunity was much bigger than the present 14 percent. The IDR is trading at a discount to its London price in the Indian markets. Several Indian investors have been waiting to cash in on the arbitrage opportunity ((buying in one market and simultaneously selling in another, profiting from a temporary difference) which could yield around 14.4% on exercise of the IDRs.

Ten IDRs represent one share of Standard Chartered. This is how the math works:

Indian IDR price = Rs 118.55

Standard Chartered stock price in London: 16.10 pounds

Standard Chartered stock price in Indian rupee: 16.10 x 83.88 (pound value in rupees) = Rs 1,350.46

10 IDRs will be equal to 1 share which works out to Rs 1185.5

Even if investors buy the IDR at Rs 1,185 and sell it at around Rs 1,350 they can get a return of 14.4%.

Many Indian mutual funds already have Standard Chartered as the largest holding in their portfolio. They are waiting for the window to open where they can quickly profit from the opportunity. Many of these investors have been holding the IDRs for more than a year, when the arbitrage opportunity was much bigger than the present 14%.

The British bank will open up this window for conversion at least once in a year, so investors in India can convert their IDRs into shares. Standard Chartered plc listed IDRs on Indian market in June 2010.