The Hindu Business Line : ADS issue: Infy may face challenge luring retail investors

Infosys Technologies Ltd is likely to face a challenge in enticing domestic retail investors to part with their holdings for the sponsored American Depository Share (ADS) issue as premium between its local shares and ADRs has narrowed down considerably. The premium now stands at around 12 per cent compared with 50 per cent two years ago.

"With a premium of just around 10-12 per cent, Infosys may face a challenge in attracting retail investors to participate in the proposed sponsored ADS issue. Moreover, the proceeds from such an issue are taxed for retail investors," sources said.

Attractive to FIIs

As the transactions are considered off-market and not routed through the exchanges, retail investors are expected to pay capital gains tax on the proceeds, sources said.

However, even a 10-12 per cent premium for large stakeholders such as foreign institutional investors (FIIs) and mutual funds should be attractive enough to participate. Also, the FIIs and mutual funds do not face the same tax liabilities such as retail investors. FIIs own 36 per cent stake in Infosys.

Infosys plans to acquire up to three crore shares from its domestic investors and sell them in the form of ADS to overseas investors, which would increase the float to over 19.35 per cent from the present 14 per cent.

The Indian part of the ADR offering will open on November 9 and close on November 17. The communication regarding the acceptance of the deposited shares would be declared on December 4, while the consideration for the same will be received not later than 30 days from the date of closing of the ADS offering.

The last date until which the deposited equity shares may be held in the Escrow Account is February 8, 2007, as per the relevant notification of the RBI, the company said in a public announcement on Wednesday.

Infosys, which got listed on the Nasdaq in 1999, has subsequently floated two sponsored ADS issues in 2003 and 2005.

The size of the previous ADS issue in May 2005, wherein Infosys converted 1.6 crore shares at $67 each, a premium of 34 per cent to the then prevailing domestic share price, exceeded $1 billion.

About 15,000 retail investors had offered to sell some 5.24 crore shares in the last sponsored issue, which was oversubscribed eight times.

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