THE GLOBAL DEPOSITORY RECEIPTS (1)
November 26th, 2007 Ogbuotobo Chuks || chuks@stockmarketnigeria.com
By Tunde Brown
In recent times, a relatively new investment phenomenon trailed the Nigerian Investment landscape. The Global Depository Receipts is one new investment catchphrase, gaining popularity by the day. Recently (July 2007 precisely), GT bank did a 2-tranche structure,an IPO of US$250mm domestic GDR offering and a US$500mm international offering. Other banks like Diamond Bank Plc have since followed suit. In a very short expose we want to try and update your knowledge of what the GDR instrument is and how it works.
A Global Depository Receipt refers to a financial security or a negotiable (transferable) certificate held in the bank of a country, representing a specific number of shares of a stock traded on an exchange of another country. These certificates represent title to a certain number of shares of the issuing company, which is listed and traded independently from the underlying shares.
When a Nigerian company issues GDR’s, a local Custodian on behalf of the GDR holders holds the underlying shares in trust. The Nigerian company then issues US Dollar denominated receipt representing title to those shares which may then be listed on the international exchange or alternatively, traded over the counter (OTC).
These instruments are typically issued to international investors to afford them the flexibility in investing in the equities on the local market of the issuer. Local investors may also participate in an offering.
A GRD holder may request the conversion of his GRDs into shares. For a fee, the Depository Bank may do this, and the GDR holder receives the equivalent number of shares, while the GDRs representing those shares are cancelled.
Next week, we would take a brief look at how the price of this instrument is determined, both in the international market, and in the local market. We would also examine the potential benefits.
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