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. Last Updated: 07/27/2016

New Markets Lure London

LONDON -- The London Stock Exchange wants to tap into the rapid growth of interest in emerging-markets equity by attracting more companies to list global depositary receipts (GDRs) here, the exchange's head of capital markets said.


"It would be natural for companies to list on an exchange that is acceptable to investors who are buying and trading in the issue," said the LSE's Robert Murdin.


GDRs and their cousins, American Depositary Receipts (ADRs), allow international investors to buy into overseas, usually emerging, stock markets without any of the settlement and custodianship headaches associated with dealings in the companies' home stockmarket.


After changes to the LSE's rules in August it is also cheaper to register a GDR than to obtain a full listing.


Although it is the leading exchange in the world for trading foreign shares, with daily turnover of ?700 million ($1.09 billion), London has fallen behind New York in terms of foreign companies' primary listings.


There are five GDRs with a primary listing in London compared with around 275 ADRs in New York, although there is active trade in more than 90 foreign issues in London.


In the first seven months of this year 81 international equity new issues from emerging markets raised $31 billion and 79 percent of these had a depositary receipts facility.


Murdin believes that London, which is ranked second in terms of institutional equity holdings after Tokyo, will benefit from the much more international outlook of its investor base compared with its depositary receipt rival New York.


He said the LSE was in talks with institutions managing potential Russian issues, although declined to be more specific. Russian oil company LUKoil is expected to make an issue of GDRs or ADRs next year, while Britain's Kleinwort Benson is marketing internationally a nine percent shareholding in leading gas producer Gazprom.


China's Shanghai Petroleum is an issuer listed in Hong Kong and New York and the majority of trading is in London, Murdin said. "There could be a lot of advantages for China companies listing in Hong Kong and London. You are looking at two different investor bases and the issue is marketed in the Far East and Europe," he added.


He noted that although the first ADR came to the market in 1927, it is only recently that they have become of interest to investors outside the U.S. domestic market.


In 1990, the first GDR was brought in by Citibank, with a $40 million issue for Korea's Samsung.


The focus for London, with four of its five primary listings from India and one from Argentina, will continue to be the subcontinent, Murdin said.


"The Indian sector has been one of the main reasons for the growth of the market. We are certainly actively talking about some more, maybe later on this year, or early next year."


Over 150 Indian companies are preparing issues worth up to $14.8 billion, and 45 have government approval. This is after 50 offshore issues which have already raised about $4 billion.


The LSE is also in talks with China, although political differences over the British colony of Hong Kong, which reverts to Chinese rule in 1997, have stymied the exchange's efforts.


Despite this Murdin expects an agreement with China's regulatory authorities in the near future.


He also noted that after the primary listing of the LSE's first Argentine GDR, Mirgor, others were in the pipeline.


"There would be quite a lot of interest in London in eastern European stocks, Pacific Rim stocks, South African stocks and Latin American stocks," Murdin said.