StanChart: India proposes 'fungibility' for IDRs

The Indian Finance Minister has proposed allowing 'two-way fungibility' for Indian depository receipts (IDRs), boosting the stock of Standard Chartered by as much as 20% in Mumbai on Friday.

"Permitting two-way fungibility of the IDRs [could encourage] greater foreign participation in Indian capital markets," Pranab Mukherjee said in a budget speech yesterday.

The move to issue IDRs - which Standard Chartered did in 2010 when it listed in India - was aimed at prompting foreign corporations to utilise Indian capital markets, but the absence of a two-way fungibility has hurt liquidity with no other company subsequently using the instrument, according to MoneyControl.com.

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One share in the London-based stock of Standard Chartered equates to 10 of its IDRs. According to Bloomberg, the Mumbai stock trades at a 2012 price-to-earnings multiple of 8.7, while the London stock has a multiple of 11.8. The move would allow the IDRS to be converted into underlying shares trading in London and vice versa.

Bloomberg cites Sailav Kaji, chief strategist at Padmakshi Financial Services, as saying: "two-way fungibility will lead more companies to look at raising capital via IDRs...Fungibility will also allow investors the flexibility to do inter-market arbitrage."

Standard Chartered shares rose 2.28% to 1,662.5p in London trading on Friday.

BC