Sunday, November 27, 2022

BSE intends to introduce GDRs

Characterized by lower levels of liquidity, the Botswana Stock Exchange (BSE) intends to introduce new products, like the Global Depository Receipts (GDRs), to help improve liquidity.

GDRs are transferable securities representing ownership of a given number of shares of a company (a company whose shares are listed in a stock exchange and underline a GDR) and issued by a custodian.

BSE Product Development Manager, Thapelo Tsheole, says by listing GDRs, the BSE will offer local investors an opportunity to diversify their portfolios through foreign investments without having to bear most of the operational and custodial constraints, which are normally associated with such cross border transactions.

Tsheole pointed out that GDRs are easier to purchase than the company’s underlying ordinary shares because of the liquidity created by the custodian or another institution who acts as a market maker. He added that the custodian facilitates accessibility of price, trade information and research on the underlying shares.

“GDRs listed on the BSE will follow trading, clearing and settlement procedures of the BSE that local investors are already familiar with,” said Tsheole.

He also stated that GDRs provide diversification opportunities into foreign securities that may be awarded Local Asset Status and can, therefore, be included when making allocations to local assets.
Tsheole emphasized that Bank of New York Mellon (BNYM) is a reputable custodian with enormous expertise in creation of GDRs and has facilitated issuances of GDRs in various markets worldwide.

He added that the BSE has benefited immensely from their expertise through various forums.

“BNYM has been considered a strategic partner in introducing GDRs on the BSE given their experience and capacity,” he revealed.

On the types of GDRs, he stated that an unsponsored GDR is issued by a custodian in response to market demand without the consent of the company whose shares underlie the GDR. Tsheole pointed out that, in this case, the company is not involved in the arrangement and implementation of the GDR programme.

“An example will be buying Microsoft shares on the New York Stock Exchange, holding them in custody, and issuing GDRs backed by Microsoft shares on the Botswana Stock Exchange,” said Tsheole.

Giving the presentation on the GDRs, Bank of New York Mellon Vice President Johannesburg representative, Lauren Deklerk, said that sponsored GDRs are established with the involvement of the company whose shares will be converted into GDRs.

“This product is entirely new in Botswana and relatively new in the region, as such, continuous education through various forums will be an ongoing initiative by the BSE,” said Deklerk.

She further pointed out that establishing GDRs present issuers with numerous advantages, such as broader and more diversified investor base, potentially greater liquidity for the underlying shares as well as enhanced visibility for the company’s shares in a foreign market. Deklerk added that they are of advantage on provision of a flexible mechanism for raising capital, potential to improve share valuation.

“These products attract investment from abroad with no impediments associated with investing directly in a foreign country,” said Deklerk.

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