IFR’s India Offshore Finance Roundtable, held in Mumbai in September, was notable for many reasons. First of all, it took place on the day the new Modi government hit the key milestone of its first 100 days in office.
What was so memorable about the date was that ongoing high levels of optimism and confidence in the country’s prospects, which had been engendered by the election of the reform-minded Modi in the first place, were very much intact. There is a tangible sense in India that good things are going to happen; 100 days had seen little naysaying – even if the government’s record, it’s fair to say, hadn’t seen straight-line success.
Another noteworthy achievement was the fact that IFR’s event was the first to focus on depositary receipt reform since a committee chaired by MS Sahoo submitted reports to the Ministry of Finance. The reports propose ground-breaking reforms both in outward-bound ADRs/GDRs as well as inward-bound programmes (IDRs or newly-coined Bharat DRs).
MS Sahoo spoke at the IFR event, providing delegates and speakers with some background on the key points of his Committee’s reports. His work continues: next up is a report on External Commercial Borrowing, which is widely expected to lead to a liberalisation of the cross-border regime for Indian borrowers.
The existing DR regime has been in place for over 20 years and was in need of updating. When the scheme of arrangement was originally enacted, access to India’s capital markets for foreign investors was limited. As the onshore market has gradually liberalised over that period and access to INR product through FII and FDI schemes has broadened, the importance of DRs has waned.
But the Sahoo Committee’s proposals, which were promptly accepted by the government, will revolutionise the product and give it a new lease of life. In essence, DRs can be issued against any underlying permissible security, including not just equity but debt, mutual funds and other products. And they can be issued not just by listed companies but unlisted companies, too. And the new rules will allow unsponsored programmes.
It’s worth noting on this latter point that SIX Swiss Exchange – which was present at the IFR event in Mumbai – announced the November 3 launch of a Sponsored Foreign Shares trading segment that will allow over 500 stocks from 27 countries that have a primary listing on a recognised foreign stock exchange to be traded – without issuer involvement – in Swiss francs.
On DRs, depositary banks are working overtime to create new programmes not just to provide blue-chip and potentially mid-market Indian companies with capital-raising channels, but also to provide investment channels for foreign investors who need or like the home bias and home currency options that DRs offer. For issuers, non capital-raising DRs provide price visibility and sound valuation parameters. The new DR regime is expected to be operationalised as early as mid-December.
In the broader ECM context, the talk in India is of a potential boom in issuance. The signs are certainly there even if, on a year-to-date basis, activity is pretty much on a par with last year, at around US$8.5bn. India has missed out on the IPO boom and despite talk that private equity and other private investors were looking to cash out on the back of a booming Indian equity market, activity has been thin on the ground.
But this remains very much on the radar screen. With the Sensex and Nifty Fifty indices both up around 35% year-to-date, the price triggers are definitely still in place. Foreign investors are eyeing India up with interest and even at these inflated levels, there are expectations that there is still upside. Banks will continue to feature strongly in the ECM pipeline as they look to raise capital to hit Basel 3 requirements and fund loan growth and as the State banks continue their sell-down strategies. And as infrastructure moves centre stage, could ECM provide solutions in this key sphere of government policy?
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