Archive for the 'Global Depository Receipts (GDRs)' Category
September 4th, 2012 by Tom Minney
Months of hard work came to a climax when the Botswana Stock Exchange successfully launched its automated trading system (ATS) and now has live trading. This replaces the open outcry trading system and the aim is to make the BSE more visible and trading more efficient. The exchange has been using a central securities depository (CSD) since 2008 and this was upgraded alongside the implementation of the ATS.
The ATS was installed by MillenniumIT, part of the London Stock Exchange Group, after a BWP8.8 million ($1.1m) contract. MillenniumIT also installed the CSD.
The new system was implemented on Friday 24 August. The day before, Thursday 23 August, was a trading holiday, while Friday was a settlement holiday with trades settling instead on 27 August. These holidays were meant to enable the BSE to transition from the old CSD system to the upgraded version.
There is still a key target to encourage more shareholders to dematerialize their paper certificates and register them in the CSD for ease of trading. According to the BSE Annual Report, 46% of all domestic company shares and 91% of foreign company shares were dematerialized by December 2011, and so was the first corporate bond. In the annual report Chairman Patrick O’Flaherty notes “Along with the implementation of the ATS, our CSD (Central Securities Depositories) system is also being upgraded. This will ensure that the trading, clearing and settlement infrastructure of the BSE remains state of the art”.
In 2011 the BSE recorded average daily turnover of BWP4.1m. The volume of shares traded in 2011 was 458.7m, up from 308.7m in 2010. Letshego Holdings did a ten-for-one share split in 2010 and Furnmart and G4s followed suit in 2011.
INTERVIEW WITH HIRAN MENDIS, CEO OF BOTSWANA STOCK EXCHANGE
ACMN: What has the market participants’ reactions to the ATS?
HM: The response has been very positive. Automated trading is a completely new development in our market, but all market participants, particularly the brokers, have embraced the development and have basically hit the ground running. The amount of enthusiasm in the market is very humbling for the BSE.
ACMN: Were there any problems in the implementation?
HM: Apart from the normal day-to-day challenges that form part of any project, there were no major challenges. As the BSE, we had to work extra hard throughout the lifetime of the project to bring all stakeholders together and make sure that everyone is on the same page; that everyone understands and embraces the primary objective of bringing our market to par with other regional and international giants. Overall, it has been an extremely demanding but very rewarding experience for all stakeholders.
ACMN: Have you seen an increase in trading volumes?
HM: It’s still too early to say. In the first 2 days, it was quiet; probably because the traders were being cautious with the new trading platform. But turnover has since jumped back to previous levels.
ACMN: Are brokers now connecting from their offices (wide area network)?
HM: The brokers have been connecting from their offices since 2008 and this setup is still being used, even with the ATS. The networks have so far been very cooperative as we have not had any outages. The links that we have been using for WAN connectivity since 2008 have been very stable. On average, we have experienced less than 10 hours of downtime per year since 2008. About half of this downtime happened outside of trading hours.
ACMN: Can you give some technical details about the ATS and the CSD and their integration?
HM: The ATS is a trading platform, primarily responsible for accepting client orders, as input by brokers, and matching those orders on set criteria to produce trades. CSD system acts as a back-end for the ATS, handling the registry function for the ATS, together with clearing and settlement of all trades that happen at the ATS. For a client to be able to trade through the ATS, then they need to open a CSD account first. Communication between the systems is on a real-time basis and as clients buy/sell shares, their CSD account balances are updated in real time. The ATS is able to trade equity, debt, ETFs (exchange-traded funds), and GDRs (global depository receipts). Instruments that are currently actively trading through the ATS/CSD are equities and ETFs. Plans to include bonds are underway and CFDs will follow in due course. Trading currently happens from 10:30 to 13:30. The first trading session is an opening auction, followed by regular trading, then an interim auction session, then another regular trading session, which is followed by a closing auction session, and finally a closing price cross session.
ACMN: What future steps are planned – such as increased data flows, remote membership of BSE and direct market access?
HM: At this point we are more concerned with ensuring that that system continues to function according to expectations. Once the dust has settled and all stakeholders are comfortable with the system then the BSE will begin exploring availing market data in real-time to data vendors etc. After that, as a second phase of the automation drive, we will explore the possibility of Internet trading. As the BSE, we understand and appreciate that a wide spectrum of developments are now possible with an automated market. Funds and time permitting, we will build services around the CSD/ATS systems in order to turn our market into a true global player.
April 2nd, 2012 by Tom Minney
This morning (2 April) South Africa’s securities exchange, the JSE Ltd, announced a revised strategy to attract more listings from African countries, as they say international interest in investing into the continent’s growth story continues to soar. The JSE is closing its Africa Board and moving the 2 listed companies onto the Main Board (listing requirements for the Africa Board are the same as for the Main Board) or to Alt-X if they are growth companies. The JSE is also stepping up trading in depository receipts (DRs) and offering a broader range of exchange-traded funds and debt instruments.
Siobhan Cleary, Director of Strategy and Public Policy at the JSE, said in a press release: “The JSE’s existing African offering includes 12 African companies. In future, there will be no differentiation (for listing purposes). For equities, this will mean that we will list the companies on the Main Board or AltX as applicable. We will also actively market and profile the African companies that are already listed.”
She says the move is driven by demand for capital and also by the increasing supply of capital from investors. African consumer markets are increasingly being targeted by local companies and companies from overseas, including a growing wave of foreign direct investment activity. Other very active channels for investments are private equity funds, hedge funds and other investors. “We think it is time that stock exchanges started to play an appropriate role in channelling the investments.”
In October 2011 South Africa’s National Treasury announced that companies previously viewed as foreign listings would in future be treated as domestic and this makes it easier for South Africans to invest in JSE-listed African stocks and makes it easier for foreign companies to raise capital. South African institutions will apparently be able to include JSE listed companies among their domestic asset holdings. Second, the JSE has developed good relations with several stock exchanges on the continent through the African Stock Exchanges Association and the Committee of SADC Stock Exchanges. Third, there are increasing investment flows into the continent’s markets and more funds focused on the region, seen as high growth compared to many world markets.
Nathan Mintah, Chairman of the JSE’s Africa Advisory Committee, commented: “This evolution in JSE’s strategy is a step in the right direction in the quest to increase capital flows into the rest of Africa. Offering issuers and investors the ‘whole JSE’ market platform for access to instruments across the capital structure in equities, mezzanine, and fixed income combined with the JSE’s liquidity will clearly benefit all stakeholders and serve as a catalyst for product innovation in areas such as exchange traded products for the rest of Africa.”
The JSE is diversifying the instrument range it offers investors from the rest of the continent. Cleary says: “We already have four interest-rate instruments from the rest of the continent, as well as an African exchange-traded product. We will give increased focus to listing further debt and quasi-equity products in future. These will also include DRs, which are traded like shares and offer investors the same economic, corporate and voting rights as holding underlying shares directly. DRs enable issuers to reach investors located outside their home markets while reducing the risk of cross-border investment.” The JSE altered its listing requirements last year to accommodate DRs, which will provide a way for African companies to raise capital on the JSE without requiring a secondary listing. DRs are applicable for African companies regardless of whether they have an existing listing on an African exchange or any other exchange. Freely traded in South African Rands, this will allow African companies to market themselves to both South African and international investors.
Cleary says there is a pipeline of companies interested and she expects more African listings this year. The JSE is competing with international exchanges such as London and New York for key listings, and also with Australia and Toronto for mining listings. Recently Nigeria’s Aliko Dangote said (see article in Financial Times, for instance) he would take the $11bn Dangote Cement for a London listing in 2013, and last year Zambia’s Zambeef also opted for London.
The two listings on the JSE Africa Board, launched in February 2009, were Trustco from Namibia and Wilderness Safaris from Botswana. The JSE says both prefer to be ranked with their sector peers and in industry sectors. Quinton van Rooyen, Trustco Group MD, commented: “This repositioning of Trustco allows the company, whilst keeping its African identity, to be benchmarked against its peers, on a world-class platform. This can only be beneficial to Trustco and the extensive African investment community.” The JSE is also pledging roadshows and analyst events to highlight the African companies from outside South Africa.
The JSE believes that its approach provides a workable solution to the sometimes complex issue of investment on the continent. The JSE’s approach also contributes to the development of markets within their own economies. Cleary added: “There is an opportunity for the JSE to work with these exchanges and various development institutions to build capacity on the continent. It also gives the JSE the opportunity to evolve its Africa strategy. This has meant looking critically at what issuers – companies, governments and others – from the rest of the continent are looking for, and aligning their needs with the JSE’s objectives,” says Cleary.
May 31st, 2011 by Tom Minney
Many foreign investors have investments in Africa but hold them in international custody in London or New York and perhaps wish to trade them on international securities markets such as London Stock Exchange or New York’s NYSE Euronext. They would choose to hold their equities in the form of Depositary Receipts, usually known as “American” (ADRs) if issued in the US, “Global” (GDRs) in London and there are DRs in several other countries including South Africa (SADRs).
The idea is that shares listed on an international exchange are transferred to a strong financial institution, who then issues a DR security which can be more easily traded on an international exchange or over-the-counter (OTC) market. BNY Mellon dominates the field but other issuers include JP Morgan Chase, Citi and Deutsche Bank. The total value of DRs traded in 2010 worldwide was $3.5 trillion, up 30% on 2009, and 89% of this trading was in the US.
Michael Cole-Fontayn, CEO of BNY Mellon Depositary Receipts (www.bnymellon.com), explained to African Capital Markets News that when institutional investors request, either for a capital raising or for more trading, BNY Mellon approaches the company and other stakeholders to set up a DR programme, usually under English or New York law. The details of the new DR security, including its currency, can be adapted to suit the international investors.
BNY Mellon holds the underlying security in the local market through a custodian, usually Standard Bank, while the newly issued DR clears and settles through the usual international clearing houses. An investor who has bought the shares in the local market can also approach BNY Mellon to convert them into DRs, which are often cheaper to own and easier to trade and settle.
When an investor holding a DR wishes to sell, he may first look for an international buyer for the DR. If not, his broker can find a buyer in the home market, then BNY Mellon would cancel the DR and deliver the shares for settlement in the local market. This can be done overnight if there is a time difference, but cancellation was suspended for Egyptian DRs when the Egyptian Exchange closed for two months in January-March 2011.
BNY Mellon currently offers DRs in shares in South African, Nigerian and Egyptian companies and offers indices based on the DRs. South Africa’s Anglogold Ashanti raised $705m through issuing DRs in New York in September 2010. Egypt’s Orascom Construction and Remco Tourism Villages created DR programmes for the US OTC markets, while Orascom Telecom traded $1.8bn of DRs on the LSE’s International Order Book (IOB) market. Four African companies – Malawi’s Press Corp, two Nigerian Banks and media house Naspers of South Africa – have GDRs listed on the LSE’s Main/Professional Securities Market.
Mary Gormley, Vice President at BNY Mellon Depositary Receipts, said that one big advantage was the speed of clearing and settlement and reduced costs. For instance, Oando plc, listed on the Nigerian Stock Exchange then cross-listed on the JSE in 2005. Movements between share registers could take 40 days, while equivalent changes using the DR system would be much quicker. She believes the DR programme will grow, with growth businesses in Kenya and Ghana interested and Senegal, Togo and Zimbabwe also considering it: “DRs come out of a need for capital raising.”
March 7th, 2011 by Tom Minney
The Egyptian Exchange (www.egyptse.com) has failed to meet another self-imposed deadline to reopen yesterday (6 March), and investors are increasingly unhappy. In a statement on 3 March the stock exchange said the delay was linked to the resignation of Prime Minister Ahmed Shafik. Costs of debt are soaring and prices for a foreign-listed exchange-traded fund (ETF) and global depository receipts (GDRs) are falling.
In the statement, the bourse says: “Resuming of trading will be decided following the discussions with Egypt’s new Prime Minister.” New regulations by the Egyptian Financial Supervisory Authority to govern trading, aimed to halt trading if there is too much volatility, are published on the EGX website. There are also requirements of disclosure of who owns the shares and many pages of blocks on share trading by named individuals.
According to interviews by Bloomberg news the EGX market could fall by up to 10% when it does reopen.
The Ministry of Finance sold LE 3 billion ($509 million) of bonds on 6 March, LE 1.5 bn less than planned, as yields on 266-day notes climbed 31 basis points from the last auction to 12.47%, reports Bloomberg.
The Market Vectors Egypt Index ETF, traded in the US, firstrose19% between 27 January and 14 February, 3 days after former President Hosni Mubarak resigned, and then fell 9%, including 6.2% in 2 weeks while the MSCI Emerging Markets Index rose 1.5%. Last week, Commercial International Bank Egypt GDRs, traded in London, sank 15% to the lowest level since July and GDRs in Orascom Telecom Holding first climbed12% but since sunk to 5.2% below their level on 27 January when the EGX shut down during political unrest.
Barclays Capital said in a report on 18 January that foreign investors hold about $13 bn in Egyptian shares and account for almost 25% of trading.
Jeff Chowdhry, the London-based head of emerging-market equities at F&C, which oversees about $163 billion worldwide, is reported on Bloomberg as saying that Egypt risks becoming “a pariah of an investment destination. If they value foreign investment in their stock market, they should get that market open immediately and take off any restrictions in terms of having too cumbersome administrative requirements.”
Slim Feriani, London-based CEO of Advance Emerging Capital Ltd, which manages $750 mn in frontier and developing nation stocks warns the EGX30 may drop another 10% when it eventually reopens after falling 16% in the week before it closed.
Bloomberg also quotes Frank Nielsen, MSCI executive director for equity and applied research, saying on 1 March that MSCI Inc. may begin investor talks on whether to remove Egypt from the MSCI Emerging Markets Index if the market is closed for 40 days or more. Argentina was dropped from the index in 2009 and reclassified as a frontier market.
Prime Minister-designate Essam Sharaf may announce his new cabinet by the end of the week. Finance Minister Samir Radwan said economic growth will slow to about 4% in the fiscal year to end June, down from an earlier 6% forecast.
Bloomberg cites Fadi Al Said, a Dubai-based senior investment manager at ING Investment Management which oversees about $ 518 billion worldwide: “I’m really disappointed on the way it’s been handled. I hope that the market will open up soon and let’s get over with this cleanout, because this will create massive opportunities.”
February 28th, 2011 by Tom Minney
The Egyptian Exchange (www.egyptse.com) is set to reopen tomorrow (1 March) after it closed on 27 Jan. in the popular uprising that saw President Hosni Mubarak resign on 11 Feb. It was due to open earlier, but delayed because strikes were devastating the banks on which it relies for clearing and settlement. Some selling is anticipated.
An announcement by Egypt’s Cabinet yesterday (27 Feb.) confirmed the opening and also that Ziad Bahaa El-Din, chairman of Egypt’s Financial Supervisory Authority, resigned yesterday. On 19 Feb. the FSA had announced that new trading rules will be in place to prevent exchange volatility. Daily share price movement will be limited to 1%, trading sessions are cut from 4 to 3 hours, and the cash reserve requirement for brokerages is cut from 10% to 5% of their capital.
According to a report on Bloomberg, market participants expect selling pressure. Walaa Hazem, who helps manage $1 billion in Egyptian equities and fixed income as vice president for asset management at HC Securities & Investment in Cairo, is quoted as saying: “The market should have opened much earlier. Locking people’s money is something very bad. This will put selling pressure on the market, in addition to the regional turmoil and the economic slowdown.”
Shares in the Middle East and worldwide continue under pressure as unrest sweeps across North Africa and the Middle East including Bahrain, Algeria, Yemen, Iraq, Oman, Morocco and Jordan. High oil prices may dampen hopes for a global economic recovery. According to Bloomberg today: “Saudi Arabia’s benchmark Tadawul All Share Index plunged 5% yesterday, to the lowest since June 6, on concern soaring oil prices, triggered by the Libyan clashes, may stall the global economic recovery. However, share indices moved slightly upwards in Sunday trading in Kuwait, Abu Dhabi and Jordan.
The Bloomberg GCC200 Index of companies in the Persian Gulf has tumbled 9.5% since Jan. 27, the last day shares in Egypt traded. Global depository receipts of Orascom Construction Industries also slid.”
Egypt’s unrest and resulting impact on tourism, business and investment could slow economic growth this fiscal year to about 4%, down from an earlier estimate of 6%, according to Finance Minister Samir Radwan.
However, many investors see there can be better outcomes from long-term stability and democracy. Global Depository Receipts of Orascom Construction Industries, Egypt’s biggest publicly traded builder, rose 3% in London on 25 Feb, so they have only fallen by 10% since 27 Jan. Orascom Telecom Holding SAE gained 0.9% in London since 27 Jan, says Bloomberg. It also quotes Walaa Hazem saying that some industries, including food and telecommunications, will be in a “better position” than others when the market opens. “People are still going to eat and talk on the telephone,” he said, singling out fixed-line operator Telecom Egypt. He says that key banks “won’t have good growth stories but they have strong balance sheets.”
Ahmed Ezz (chairman of Egypt’s biggest producer of steel) and Yasseen Mansour, (chief executive officer of Cairo-based real-estate developer Palm Hills Development SAE) who were both seen as close to former president Mubarak, are among executives referred by Public Prosecutors for trial on corruption charges. Both companies said their operations are run independently of the chairmen.
Bond yields are also higher than before the unrest, although there have been fluctuations. According to Bloomberg data, the yield on Egypt’s 5.75% dollar bond due 2020 has dropped 29 basis points to 6.92% percent after reaching a high of 7.21% on 31 January, compared to 5.16% at the start of the year. Yields on treasury bills have reached 2-year highs since 11Feb.
On 27 Feb, Egypt sold 2 billion pounds ($340 million) in 91-day bills and LE 3 bn in 273-day notes in an auction, falling short of its target of raising LE3.5 bn.
Bloomberg quotes Moustafa Assal, MD of Cairo-based Beltone Financial’s fixed income unit: “The high yields, especially on the longer-term notes, are a big concern because the Government is becoming unable to cover its intended issuances. They will not come down unless there’s political stability.”
Bloomberg also quotes Amro Halwani, senior equity sales trader at Shuaa Capital PSC in Saudi Arabia: “With no clear end to the geo-political turmoil in the region, local investors are erring on the side of caution. The regional uncertainty, with Libya this week’s reason to sell, has pushed fundamentals out of the picture. The surge in oil is an ongoing threat of a possible derailing in the global economic recovery, and gave investors a reason to move away from riskier assets.”
February 16th, 2011 by Tom Minney
The Egyptian Exchange (EGX – www.egyptse.com) has again postponed its reopening and says it will only open when the strike-hit banking system gets back to normal. Dates mentioned now include Sunday (20 Feb) or Tuesday next week. The bourse closed on 27 Jan after a 16% fall in its EGX30 Index, including a dramatic 11% fall on the last day.
The exchange will wait 2 days after the banks open, according to media reports. The banks will not open until after the weekly Friday Muslim prayer day.
EGX Chairman Khaled Seyam told Bloomberg today (16 Feb): “Our market is directly tied to the banks because they are our custodians… We need to make sure they are back to normal operations because we cannot afford to start and stop again.”
The exchange has also outlined steps to limit potential losses from investors who are may be rushing to get funds out. These could include rules to halt trading for 30 minutes of the EGX 100 Index (which closed at an eight-month low of 884.79 on 27 Jan) rises or falls more than 5%. The exchange will shut for the day if the EGX 100 moves more than 10% percent, he said.
Bloomberg also reports that representatives of private investors were meeting exchange officials and some had asked for suspension of trading of 13 companies associated with the regime of former President Hosni Mubarak. These include Ezz Steel, Egypt’s biggest producer of the metal, Ezz Aldekhela Steel Co. and Ezz Ceramics & Porcelain Tiles Co., affiliated with Ahmed Ezz, a member of Mubarak’s former ruling party whom the public prosecutor is investigating for corruption. Some investors called for more regulation to prevent insider trading and improve disclosure and for new management at the Egyptian Financial Services Authority which regulates the securities market.
Shares in the Market Vectors ETF have climbed 12% since 27 Jan, but dipped 0.7% on 16 Feb, although the fund closed to new money after investors sought to pour in funds on 28 Jan. Global depositary receipts (GDRs) of Orascom Construction Industries (Egypt’s biggest publicly traded builder) and Commercial International Bank Egypt SAE (the biggest publicly traded bank), both slid more than 4% on trade today on the London Stock Exchange.
Egypt is also seeking to issue EGP 4.5 bn ($765 mn) in 91- and 273-day T-bills as scheduled on 20 Feb, while EGP 5.5 bn ($935 mn) Egyptian pounds in 182- and 364-day bills has been postponed from 17 to 21 Feb. No foreigners tendered for a record EGP 15 bn issue of T-bills on 7 Feb, but local banks oversubscribed 1.35 times.
Selling pressure seems to have built up with the market closure. Associated Press quotes Wael Ziada, head of Egypt research at the Cairo-based investment bank EFG-Hermes: “The market is going to decline. There is no doubt that there is some pressure, and it’s been building up ever since the market has been closed.”
Tens of thousands of Egyptians are on strike over very low salaries, and poverty. World food prices are at record highs. The cost of protests and slowdowns in the economy is huge, including major disruption to tourism. However most large businesses said operations were almost back to normal from 7 Feb.
February 3rd, 2011 by Tom Minney
Bulls seem to be waiting for a positive outcome from widespread pro-democracy unrest in Egypt, one of Africa’s biggest stock markets. The Egyptian Exchange (EGX, www.egyptse.com, formerly known as the Cairo and Alexandria Stock Exchange), has been closed for several days as unrest intensified. Investors seem to believe that the outcome of political change will be good for asset values and prices have climbed for depository receipts of Egyptian companies and an Egypt exchange-traded fund available internationally.
Leading emerging markets investor Mark Mobius has told an interviewer on Citywire on 31 Jan that a change to the regime of President Hosni Mubarak could provide a “tremendous boost not only to Egypt but to the Middle East”. He added: “We’re looking to buy in at the right price”. However, he is waiting for the stock market to drop another 10%-15% on the political instability.
Mobius is reported to be excited by the potential of Egypt’s young well-educated population, leading the uprising: “Let these guys loose and the place could go wild. I’m optimistic.” His investments in Egypt include banks, telecoms and construction companies.
Popular protests began on 25 January and news reports say 1 million Egyptians answered calls to join demonstrations in major centres on 1 February. Today there are reports of clashes with supporters of Mubarak, although the army has declared it will not fire on peaceful protestors and has moved to keep the sides apart. The UN estimates that as many as 300 people may have died.
Banks and the EGX are closed for a fifth day today (3 Feb) and most of the rest of the economy has been closed amongst unprecedented peaceful and popular protest. Banks are expecting to open on 6 February and the stock exchange possibly the next day, according to the Financial Times.
The EGX 30 Index fell by 16% last week before the market closed, reports Bloomberg news, including 11% last Thursday (27 Jan) when the market closed. Debt rating agency Moody’s cut its rating on sovereign debt from Ba1 to Ba2. It is the second agency to downgrade i the light of concerns grow over public finances.
However, the Financial Times reports that investors are betting the market will rebound. An exchange-traded fund, the Market Vectors Egypt Index ETF, run by Van Eck, has seen its price climbing and stopped buy orders on Monday. However, it says money had been flowing in, and more than doubled its existing $11.6 million assets with a $12 mln cash inflow last Friday, pushing up its price by 10% and leaving a big 12.5% premium to the underlying assets, although valuing these will not be possible until the market reopens. Bloomberg says today the premium is 11%, the second largest of 1,400 ETFs it tracks.
The FT quotes Ed Lopez, director of marketing at Van Eck as saying sell orders are still possible: “We did not want to put any gates up to prevent investors from withdrawing their cash if they wanted to.” Creation and redemption orders are done for large institutional investors or market makers and “Individual investors have been able to buy or sell the Egypt ETF in the secondary market as they want,” said Mr Lopez.
Egyptian assets listed in London and Canada have are also climbed, including Orascom Construction Industries, Orascom Telecom Holding, Centamin Egypt (gold mining), and Transglobe Energy. According to Bloomberg today, London-traded global depositary receipts of Orascom Construction Industries SAE, the country’s biggest publicly traded building company, gained 16% from a 1.5-year low on 31 Jan and Egypt’s 10-year dollar bonds rallied 1.1% this week, down from yesterday’s figure.