Global Depositary Receipts (1)
June 30th, 2008 Ugonna Maduagufor || ugonna@stockmarketnigeria.com
According to the Securities and Exchange Commission’s records, no fewer than eight Nigerian banks had applied for listing on the London Stock Exchange (LSE) by way of Global Depositary Receipts. The first Nigerian bank to embark on a GDR programme was United Bank for Africa in 1990, though it could not be said to be very successful, largely due to the poor political and economic climate prevailing in the country (Nigeria) within that period. The GDR thing actually became well pronounced in the Nigerian business world in year 2007, when seven different indigenous banks sought for capital through the use of global Depositary Receipt (GDR) programmes.
What is a GDR?
Using Guaranty Trust Bank plc GDR issue in 2007 as an illustration, a GDR- Global Depositary Receipt is a certificate issued by a depositary bank (JP Morgan Chase Bank) representing an investors equity holding (ownership) in a predetermined ratio (multiple per unit) of an underlying share(s) of a company (Guaranty trust Bank plc), which is tradeable in a security exchange market(London Stock Exchange) outside the local capital market (Nigerian Stock Exchange) of the company. From the perspective of someone in a locality (United Kigdom) foreign to the company issuing the underlying shares, where the GDR is tradeable on their market, It represents the ownership of shares in a foreign company (GTBank plc) whose GDR is listed on their market (London Stock Exchange). Hence a Global Depositary receipts programme is a form of cross border listing of a foreign company’s shares which offers such specific advantages while raising equity from a foreign market as: overcoming language barriers, foreign exchnge barriers etc
A GDR can still be issued and transacted upon to an extent in the domestic market of the original issueing company, if provisions for such a tranche was made for the GDR programme. Due to such a primary local issue by way of an Initial Public Offer or subsequent Public Offer, transaction channels available to such indeginous investors includes: (1) Over The Counter trades; (2) cancelation (conversion) of GDR certificates or a portion (units) in favour of the underlying shares; and (3) trading on foreign capital market(s) in which the GDR is listed through a local broker that has a trading account with a licensed foreign stock broker.
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