Non-voting depository receipts expected to lure foreign capital
Non-voting depository receipts expected to lure foreign capital
The HCM City Stock Exchange has proposed to the State Securities Commission to allow issuance of non-voting depository receipts (NVDRs). This is a new trading instrument which aims to stimulate foreign trading activities in the local stock market.
The proposal would counter the fact that foreign investors who want to invest in some listed companies may be prevented from doing so by foreign ownership restrictions.
Nguyen Thi Viet Ha, head of Research and Development at the HCM City Stock Exchange, said lifting foreign ownership ratios in listed companies was not the only way to attract foreign capital.
"Raising foreign ownership needs careful consideration to manage the investment structure between domestic and foreign investors. More developed markets, such as Thailand, also still restrict foreign ownership," Ha told the Dau tu chung khoan (Securities Investment) newspaper.
The HCM City exchange was seeking solutions to facilitate foreign investment and trading and NVDR could be an option, Ha said.
Issuing shares without voting rights also had its own problems. Issuers may be not be qualified to issue shares or they may not want to raise capital through issuing shares, Ha said.
Investing in NVDRs, investors would receive the same financial benefits, including dividends, right issues or warrants, as ordinary shareholders. The only difference between ordinary shareholders and NVDR holders was the latter could not be involved in company decision-making.
Ha said the HCM City exchange would establish a wholly owned company which would be responsible for issuing and selling NVDRs to investors.
With regard to the concerns that NVDR holders not attending a company's shareholder meeting could lead to the meeting being a failure, Ha said the regulator could limit the percentage of NVDRs in the first stage of deployment to ensure the holdings of the shareholders' meeting.
"Investors who own 5 per cent of capital of a company, including NVDRs and common stocks, will be obliged to disclose information as a large shareholder. When reaching 25 per cent of ownership, they also have to make public offer of sale," Ha said.
However, under the current regulation, exchanges are not allowed to establish a subsidiary company or issue and receive depository certificates. Thus, in order to implement such incentives, other relevant laws should be amended.
In addition, trading regulations should also be more defined in law.
The State Securities Commission has approved the exchange's proposal and submitted it to the Ministry of Finance for consideration.
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