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ETF Specialist

New Issues of Barclays' India ETN Halted

Barclays suspends sale of India ETN for the second time since 2007.

On Dec. 9, India's financial regulator Securities and Exchange Board of India banned Barclays Bank from issuing offshore derivative instruments, due to the bank's improper disclosure regarding the trading activities of these financial instruments. Following SEBI's notice, Barclays announced that it has halted the further sale and issuance of its iPath MSCI India Index ETN  but will continue to redeem notes upon shareholder request.

This is the second time Barclays has suspended the sale of this ETN since it was created in December 2006. Back in 2007, sales activities related to this ETN were halted due to uncertainties regarding new SEBI regulations. In the month following the sale suspension, INP traded at an average premium of 15.8% to net asset value, due to a supply shortage. When normal trading activities were reinstated, INP's average premium returned to a range of 1% to 2% in 2008.

Following this current suspension, INP closed at a 2% premium to NAV on Dec. 11, which is higher than recent levels-- in 2009, INP traded at an average 0.63% discount to NAV. While we do not expect Barclays to shut down the fund, we highlight that when Deutsche Bank shut down its PowerShares DB Crude Oil Double Long ETN in September this year, shareholders were returned the cash value of the NAV, and not the market value (see details here). Should Barclays decide to close INP, we would recommend investors sell the fund before the redemption and try to capture a little additional return through the market price premium.

Like many other emerging markets, India's stock market has performed very strongly this year-- INP's year-to-date return is almost 100%. Other India-specific ETF options include--PowerShares India Portfolio  (PIN), WisdomTree India Earnings Fund  (EPI), and newly launched iShares S&P India Nifty Fifty Index Fund (INDY). There are also two closed-end funds available--Blackstone Group's India Fund (IFN) and Morgan Stanley India Investment Fund (IIF). And finally, there are about a dozen or so India-specific mutual funds available as well.

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Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), Claymore Securities, First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

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