Commercial International Bank (Egypt – CIB) has become the third Middle East institution to announce plans to issue global depositary receipts (GDRs). In October 1995, Lebanon’s Banque Audi successfully launched a GDR issue which raised $34 million, and in March of this year, Banque Marocaine du Commerce Exteneur (BMCE) is planning a GDR issue that is expected to raise about $50 million.
The spate of issues shows a new willingness among local institutions to tap the international capital markets, and offers investors an attractive means to invest in some of the top Middle East stocks. All three institutions – Banque Audi, BMCE and CIB – are among the leading institutions in their markets.
Funds raised by a GDR issue are deposited with an international bank, while the receipts themselves are traded on an international exchange, such as London, Luxembourg or Dublin. The receipts are denominated in US dollars. In the case of Banque Audi, the $34 million raised are placed on deposit with Bankers Trust, and the receipts are traded on the Luxembourg exchange. This same arrangement is being used for the BMCE issue.
For several reasons this is more attractive to international investors than investing directly in regional markets. Firstly, GDR issues require a greater level of disclosure than is normally demanded by local stock exchanges.
Additional security comes from the fact that the funds are held outside the market where the GDR is issued. Because the GDR is dollardenominated, the investor is also able to make a comparison between stocks in different countries without having to factor in exchange rate risk. ‘The investor can compare CIB with Banque Audi,’ says Albert Momdjian, emerging markets analyst at James Capel & Company.
Trade and settlement procedures are also easier because they are listed on more liquid markers. Marketmakers, which provide that liquidity, have yet to become a feature of Middle East markets. In a more liquid market, the share price is also likely to suffer less if an international player wants to sell a block of shares.
For the three banks issuing the GDRs there are also advantages. The banks can broaden their shareholder base, but do not have to list their stocks directly overseas. One of the most important benefits is the higher profile it brings. ‘The publicity is good for them if they want banks and international clients investing in Egypt,’ says Momdjian of the CIB issue.
BMCE’s decision to launch a GDR issue is also based on its efforts to raise its international profile and expand its international activities.