The Indian depository receipt (IDR) holders of Standard Chartered will not be able to

RELATED ARTICLES India Q4 GDP seen slowing to 6 per cent: StanChart Rupee could lose 2-3 per cent, says StanChart

participate in its proposed rights issue due to regulations. Instead, they will be entitled to cash payout from the proceeds of the sale of reserve shares kept aside by the company for non-participating holders.

“There are certain limitations on the ability of the company to make a rights issue available to holders of IDRs because of the potential application of certain provisions of Indian law, compliance with which would not be possible within the timeframe applicable to a UK rights issue. Additionally, there is no framework under which an IDR rights issue can take place,” the company said in a filing to the Bombay Stock Exchange.

The bank is diluting around 12.5 per cent stake through the rights issue. According to its India spokesperson, shareholders in other markets like South Africa, US, Canada and Switzerland also will not be able to participate.

Even though holders of IDRs are not able to buy new shares under the rights issue, they do have an entitlement to new shares under the rights issue on the basis of one new share for every 80 IDRs held on the record date, that is October 25. Holders of IDRs with fewer than 80 IDRs do not have any entitlement to new shares.

The depository will sell the new shares in the open market after the rights issue. “The depository will then distribute the net proceeds from the sale of such rights pro rata to holders of IDRs entitled thereto in Indian rupees in accordance with the terms and conditions of the IDRs,” the company said.

On the timeframe, the company pointed out that making a rights issue available to holders of IDRs could have timetable implications that could not be satisfactorily resolved and which could make it difficult for the company to undertake a rights issue simultaneously in the UK and in India.

“The issue has an offer period of 10 business days, which is shorter than the offer period currently applicable to an Indian rights offering. In addition, the issue is being launched on the basis of an offering document which would not meet the disclosure standards currently applicable to an Indian rights offering,” the filing said.

According to the company, the holders hence cannot be offered fresh shares under the rights issue as that would amount to breaching of domestic regulations.

Standard Chartered was the first foreign entity to list its shares in India in May this year. The bank is working with the Securities and Exchange Board of India to frame rights issue guidelines for foreign companies listed in India.

“Once the regulations permit future rights issues, if at all there are any, that will empower the Indian investors to participate too,” the India spokesperson of the bank told Financial Chronicle.