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28 March 2024

Gulf nations warm up to depositary receipts: BNY

Several regional firms have listed depository receipts on the London Stock Exchange. (AP)

Published
By Piyush Pandey

Peter Gotke, Vice-President, Depositary Receipts, BNY Mellon, came to Dubai in December 2008, when the global economic crisis was at its peak. Since then, he has been meeting companies, royal families, their advisors and lawyers, and educating and advocating for issuances of depository receipts (DRs). With BNY Mellon getting mandates for DR issuances from regional firms, Gotke spoke to Emirates Business about DRs initiative.

How has the financial crisis impacted DR issuances in the region?

When I came to the region at the peak of the crisis, we were perhaps the only bank that was hiring during that time. Last year was tough for many markets.

People were not doing deals, not raising funds. I decided to build relationships and educate people on DRs. These discussions were valuable, because while DRs were raising incredible sums of money globally, they were particularly not understood in the GCC.

I think the GCC is the last market where DRs will kick off. There are a number of companies and people we are talking to, and we have got mandates from some of them. Once the confidence comes back, a number of companies will announce initiatives involving DRs.

But we hardly witness any depositary receipt issuance in the region?

In the Middle East, you have very strong markets, particularly Saudi Arabia. No one has access to Saudi Arabia but everyone is talking about it. In 2004, people were talking about Hong Kong, Singapore and Japan as very strong markets, but who knew China would emerge as the jewel in the crown. Here, Saudi Arabia is the biggest market with a large young population, and all the indicators are positive. We are very strong in Egypt, which was hard to access for foreign investors.

In London, you need high level of corporate governance for DRs. Egypt is a classic case of how markets should open up. It's an open market now where you can buy and sell.

Gradually, they [investors] began to understand the market and corporate governance. Investors started to buy not only in London but also in the local market.

Can you brief us about some successful DRs issuances in the Middle East markets?

All Gulf countries have different reasons for DRs. In Qatar, QTel and Commercial Bank did it. Bank of Muscat, which is our client, had DR listed in London five years ago to broaden its investor base. DRs are not the first thing people think about. We have to persuade people in Saudi Arabia, Qatar and the UAE about the advantages of DRs, availability of funds and visibility.

Why should Gulf firms go for DRs?

I think there are many reasons. Markets, in many cases, are relatively less liquid. There is not enough liquidity. DP world may be an exception and DFM has great liquidity, but it is retail driven. They [DRs] access institution globally. Hedge funds pumped in lots of money before the crisis and pulled out after the crisis. DRs attract long-term value creation growth-oriented investors. DR is a vehicle that gives more control to the management.

How difficult is it to market Gulf before international investors?

We have a big in-house team based in London and Hong Kong, called the support team. They are responsible for making sure that right messages are transmitted and are understood by the global investors.

Every region has its own problems. Russia had its own problems, and India and China have their own. We take our clients and break down their prejudices.

We are really involved with investors. Unfortunately, for the Middle East, particular circumstances went against the region, which are now being reversed.

Transparency has been the issue with most companies in the region…

We work with our clients. We have very big corporate governance team. We have Bank of Muscat as an example. We work with them, they seem to have best practice and they do not have grey area. When it comes to transparency, Bank of Muscat is at par with others. We take clients to meet investors. Companies now understand that if they want to play with big boys, they will have to play with big boys' rule. They are now becoming transparent. Companies realise DRs is not just about raising capital and listing in London. There are other advantages and one of them is that you are forced to have high level of corporate governance.

We educate investors and clients. We have formed the Middle East Investors Society. BNY and Thomson Reuters came together to form a 200-member society, where we have leadership forums, conferences and web casts. We help the region with process of bringing best practice with local firms. BNY is helping the region to develop best practices.

Do you think the worst is over?

Most people say that the worst is over. Based upon my conversation with several people, I can say that people are putting plans in place for the next round of growth. By that measure, people on the ground believe that the worst is over.

Do you provide opportunities to local investors to invest in global DRs?

It's tough one to answer that. BNY has the biggest market share in DR issuance.