Standard Chartered IDR IPO Review: Beware of the Risks & Taxes

Standard Chartered PLC or StanChart is coming out with its first ever unique offering in the Indian Market - its called the IDR or Indian Depository Receipts. In this article, we cover the details of Standard Chartered IDR issue, the review of Standard Chartered IDR, rewards, risks and tax implications of Standard Chartered IDR

Standard Chartered Indian Depository Receipts IDR Details

First of all, what is an IDR and how is it different from a normal stock like State Bank of India or Reliance?
The concept of Standard Chartered IDR is unique because this is the first time it is coming to the Indian Markets. We all are aware about the Indian companies floating GDR and ADR in foreign markets like USA and other countries. The same concept applies here - Standard Chartered being a foreign bank wants to trade in local Indian Markets, hence it is going for IDR or Indian Depository Reeceipts

The Standard Chartered IDR issue will be around 500 million USD and there will be around 22 Crore IDR shares or better to say 22 Crore IDR's floated in the Indian market for trading on Indian Bourses. For a common investor, it will be same like a share like that of any other company like Infosys, Reliance, etc.

The listing of Standard Chartered IDR is expected to be complete by June 2010. The company is banking on the healthy financial nos. that the Indian Unit has posted recently and also trying to capitalize on the brand value that Standard Chartered is a well known brand in India for last so many years.

As per the IDR regulations, the proceeds from this Standard Chartered IDR issue will be reptriated to United Kingdom, the country where Standard Chartered is headquartered.

So, this Standard Chartered IDR looks to be a good option for investors looking for foreign exposure?
Yes. It might be so. But one also needs to be aware of the risks.
Forex risk may creap in anytime, and we have seen a lot of volatility in the forex rates in last 2 years.
Also note that investors may take the hit on the tax front.

What are the tax implications of Standard Chartered IDR Indian Depository Receipts?

This is where the IDR differs from a common Indian Stock. The other Indian Stocks have two categories - Short Term Capital gains tax at 15% and Long Term Capital Gains tax at 0%.
However, IDR may not get this lower tax benefit. It might be taxed at 20% for long term capital gains tax and 30% on Short Term Capital Gains Tax.

Moreover, the dividend, if declared by any IDR issue, will also be taxed for dividend distribution tax.
Hence, all these factors related to big tax rates may force traders and market makers to stay away from opting for IDR issues and even trading in these IDR securities. That might hit the trading volume of IDR, as compared to other common stocks. The same may be felt by the other investors. So the investors need to be careful about these Risks associated with IDR.