The London Stock Exchange does it. Nasdaq and NYSE do it. Now, it’s the turn of Mumbai to show the world that its capital markets have come of age, and it can emerge as a global financial centre — even without massive government investment or focus.
In a first ever, the Bombay Stock Exchange (BSE) has now started doing international roadshows to market itself to global investors as an ideal location to raise capital — especially through IDRs, the first of which was done by Standard Chartered Bank .
“There’s a general misconception that Indian capital markets are over-regulated , that regulation is intrusive, so it’s important to let global investors know that Indian markets have evolved, the pace of reforms is fast. It is also important that we all came together as a group to address concerns of international investors ,” says Nehal Vora, head of planning and policy at BSE, who was in London recently to host road-shows for IDRs, along with a phalanx of experts from diverse fields, like merchant banking, taxation, legal, and of course, Standard Chartered executives.
It could sound a bit ambitious to tell investors in a global financial centre to move to the BSE for their capital needs, but given the level of interest from international investors, who stuck through the road-shows despite a short sojourn in freezing cold, thanks to a fire alarm, it seems everyone wants a slice of the Indian stock exchange action.
According to Ranganath Char, managing director of JM Financial’s investment banking, they’ve had a number of enquiries from global companies, including the likes of Nokia and IBM to issue IDRs.
“We haven’t actually actively started marketing IDRs. These are just some of the routine enquiries we’re getting,” he says.
Roadshows like these also help identify what key issuer concerns are — as far as IDRs go, the two major concerns are about use of proceeds. During the StanChart IDRs, regulators decreed that proceeds of IDRs have to be sent overseas, and then if at all reinvested in India. While investors are aware of the need to monitor roundtripping, most potential IDR issuers would have a strong presence or interest in the Indian market.
Standard Chartered, which raised $500 million for general corporate purposes, had to “just coincidentally” invest a similar amount in investing in a Chinese bank, even though Stan-Chart routinely invests heavily in India , says Mark Stride, who handles StanChart’s group corporate development out of Singapore.
Another key issue is clarity on taxation, the question of whether IDRs are subject to STT or capital gains, says Mr Vora. While some experts believe that the true growth of IDRs will be when companies in emerging countries, which actually need to raise capital and don’t have deep enough domestic capital markets to do so, realise they can tap both international and Indian funds — like Asian or African companies.
As of now, though, expect only showcase names like StanChart. Mr Vora is clear that IDRs are BSE’s very new, very pet project, and the important thing is to set precedents and establish credentials with the first few major issues. “Everyone will be watching how the first few work out, plus it will give us time to sort out any regulatory hitches and learnings,” he says.
IDRs might still be a new kind of product, and take some time to establish itself, but the experts expect that the action will hot up after the one year lock-in period for StanChart, when the scrip starts seeing activity.
Source : ET
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