Tips for investing in NVDRs

Foreign ownership of most bluechip stocks has reached its limit. To avoid ownership limitations of stocks, foreigners can invest in NonVoting Depository Receipts (NVDRs) and retain all the finan¬cial benefits of the underlying stocks.

It is almost eight years since the SET introduced NVDRs as an alternative for investors, especial¬ly foreign investors. NVDRs are issued by Thai NVDR, wholly owned by the SET and automati¬cally listed on the exchange. Investors get all the financial ben¬efits of the underlying stocks except voting rights. There is no limitation on foreign holdings.

It is it easy and convenient to trade NVDRs. One can buy and sell them just like buying and selling stocks. With the conven¬ience of trading, no limitation on foreign holdings and the reten¬tion of all financial rights, NVDRs have become more and more popular among foreign investors. At present, the average daily turnover of NVDRs is 37 per cent of foreign investors' turnover or about 14 per cent of market turnover.

Thai NVDR seeks to continu¬ously enhance the system's efficiency in order to reduce operational risks and costs while protecting investors' rights. It provides foreign investors with the opportunity to queue up for registration of the underlying stocks. Whenever the foreign ownership of the underly¬ing stock drops below the limit, Thai NVDR will automatically redeem and place the name of the investor as stockholder in the underlying company's regis¬trar book.

To facilitate NVDR trading, instead of recti¬fying trade on trading day (day T), today's investors, through their broker, may rectify their trade via TSD's system at any time but no later than settlement time on T+3. This minimises settlement default risk, boosting investors' confidence and liquidity.

Thai NVDR also provides an edividend service by crediting divi¬dends into the bank account of the NVDR holder on the payment date, so the investor does not need to worry about going to the bank to cash a dividend cheque. From last January, NVDR holders have been able to apply to receive dividends in foreign cur¬rencies instead of the baht. The currencies are the US dollar, euro, sterling, yen and Singapore dollar. Any bank fees incurred are borne by the beneficiary and deducted from the dividend pay¬ment.

As of June 30, accrued dividend payments for NVDR holders amounted to Bt54 million. Investors who have had difficulty in receiving dividend payments may call 02229 2897.

The new Securities and Exchange Act allows the placement of secu¬rities as collateral through the scripless system of the deposito¬ry and paves the way for NVDR holders to enjoy the use of NVDRs as collateral. By this year's end, TSD and TCH as clearing houses will accept NVDRs as eligible collateral and these NVDRs will have the same haircut rate as those of underly¬ing stocks.

Kongkeaw Piamduaytham is managing director of Thai NVDR