Standard Chartered Bank INDIAN DEPOSITORY RECEIPT…Looking Beyond the Financials…At the Exchange Risk Involved…What if the Rupee Appreciates !?

I’m Looking Beyond the Financials here…..at the Standard Chartered Bank (SCB) INDIAN DEPOSITORY RECEIPTS (IDRs) Issue….am not inclined to recommend Investment,although the Pricing looks reasonable and it will not form part of the Overseas Investment Annual Limit of US $ 200k per Indian Citizen….probably a contrarion here as all seem to be recommending the IDR….I’m a bit worried about the Exchange Rate Risk involved…in that the Rupee may appreciate and as the underlying SCB Share is quoted in Pence and HK $ it would impact the Rupee Quote on BSE and NSE….Is my thinking conceptually flawed on this risk ?…do let me know 

I’ll let the IDR List and take a call on it as a Secondary Market Investment

Standard Chartered Bank,that is the sponsor of the Mumbai Marathon since it’s inception a few years ago,has just launched INDIAN DEPOSITORY RECEIPTS (IDRs) in India

The IDR Issue Specifics

The IDRs have been priced in the range of Rs 100 to Rs 115 with 10 IDRs equivalent to one SCB Share of US $ 0.50 Face Value…240 Million IDRs are on offer,with QIB reservation at 50%,Non Institutional at 20% and Retail at 30%…The Issue Opened on May 25,2010 and shall close on May 28,2010

Issue Price Range is at Relatively Reasonable Valuations on both Earnings and Assets basis 

Assets Basis

At December 31,2009,SCB had a Consolidated Networth ,net of Minority Interests of US $ 27340 Million,with Equity at US $ 1013 Million ( FV US $ 0.50) and Reserves at US $ 26327 million…That’s US $ 13.50/share or Rs 635/share (US $=Rs 47)….With 10 IDRs=One Share,it translates to Issue Price of Rs 1050/share,assuming the Pricing is finalised at Rs 105….That’s a Price to BV of just 1.65….The Networth should move towards US  $ 31000 million at December 31,2010 with Profits net of dividend of @ US $ 3000 million and IDR Proceeds of @ US $ 536 million (assuming Rs 105 pricing and Exchange rate of Rs 47 to the Dollar)…Equity will move up marginally to US $ 1025 million.The Book Value/Share would be @ US $ 15/share or Rs 705…The FY 10 P/BV would then drop to 1.5….   This is a shade lower than even the 1.6 projected for FY 11 March ending for  ICICI Bank and State Bank of India…and significantly lower than the over 2 times projected for Axis bank,HDFC Bank and Yes Bank…It’s more on less equal to that projected for overseas Banks like Westpac and National Australian Bank in Australia and even those in Hong Kong ….so the IDR is not priced  high on Assets basis read more