The Central Bank of Nigeria Issues New Global Depository Receipts' Guidelines

Moses Obajemu

The Central Bank of Nigeria (CBN) has issued new guidelines to regulate the issuance of Global Depository Receipts (GDRs) by banks selling their shares to international investors.

The new regulatory framework mandates banks selling GDRs to furnish the apex bank with the details of the beneficial investors on a copy of the Certificate of Capital Importation issued in favour of such banks. This is contained in a December 3, 2007 CBN circular sent to banks entitled: "Global Depository Receipts (GDRs) and Certificate of Capital Importation (CCI) Issuance", signed by the Director of Trade and Exchange, Mrs Omolara Akanji.

A Global Depository Receipt is typically a dollar-denominated instrument issued in international financial markets through a registered depository bank. They are negotiable bank certificates, issued by the depository bank which represent ownership of certain equity securities (the underlying shares) that are issued and tradeable in the local market. The GDRs are exchanged with the underlying shares at a pre-determined ratio (for example, 50 shares to 1 GDR), and are mostly used for capital raising by companies from emerging markets to access investors in international markets.

The banking watchdog explained that the release of the guidelines became necessary in view of the resort of banks to GDRs with the principal aim of raising capital and selling shares, and the need to align the new development with the requirements of CCI issuance to foreign investors as well as build their confidence in the GDRs. "Certificate of capital importation shall continue to be issued in respect of foreign exchange inflow for loans, investment purposes and or capital, subject to existing guidelines as specified in the Foreign Exchange Manual.

"Where the foreign exchange inflow is in respect of GDR, a master CCI should be issued in favour of the Depository Bank (DB) to the tune of the foreign exchange inflow," the CBN directed. Upon issuance of the master CCI, the CBN said the receiving bank/Authorised Dealer should furnish it with a copy with the details of the beneficial investors to the GDR endorsed at the back of the master CCI. The apex bank directed that where any portion of the GDR is cancelled offshore by the investor, the depository bank shall inform the custodian/sub-custodian of the cancellation and provide the latter with the necessary documentary evidence of same.

"The depository's nominee custodian shall have valid CCI covering the number of shares withdrawn from the GDR and also effect a "markdown" of the CCI from the master CCI. "With the valid CCI covering the number of shares withdrawn from the GDR, the direct non-resident equity investor can trade with the underlying shares in the local market. The investor shall also be entitled to repatriate funds outside Nigeria," the circular said.

The CBN directed all authorised dealers to ensure compliance with the provisions of the circular, while those with subsisting approvals should also be guided accordingly. On the repatriation of funds outside Nigeria by the foreign investors, the circular on the guidelines on utilisation of CCI in the Forex Manual and/or relevant circulars on same shall apply. In addition, a duly completed form A, letter or evidence of conversion from GDRs to shares and confirmed by the depository and the nominee custodian; documentary evidence of cancellation of the GDR from the depository; letter from the direct non-resident equity investor, stating relevant details to the Authorised Dealer via his broker, requesting for repatriation of sales proceeds, shall also apply.

The CBN also directed that photocopy of the original CCI, and sale contract note or evidence of sale of shares from a Nigerian broker, be included for repatriation of funds processing.

Among Nigerian banks that have successfully raised dollar denominated capital via GDR issue ate Guaranty Trust Bank Plc, Access Bank Plc, and FCMB Plc. Those currently exploring the method include Fidelity Bank Plc, and Afribank Plc.

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