On May 30, 2023, SGX Group launched new product Singapore Depository Receipts (SDR) under the Thailand-Singapore DR Linkage. This marks the first exchange-level DR cooperation in Asean, demonstrating an important step forward in enhancing regional connectivity. From April 1, SGX expanded the SDR suite to include five new Thai names, taking the overall SDR coverage of the SET50 benchmark index to over 40%.
This special edition of SGX Research’s 10 in 10 provides an introduction to SDRs and all that investors should know about. For more information, visit SGX’s SDRs products page at www.sgx.com/sdr
1. What are Singapore Depository Receipts (SDRs)?
SDRs are depository receipts that represent beneficial ownership in the underlying securities such as companies listed in Thailand but are traded locally in Singapore like a stock (i.e. traded in Singapore dollars and follows local trading hours and SGX-ST trading regulations). SDRs are issued on an unsponsored basis and are not issued by the underlying companies.
2. What are the benefits of trading an SDR instead of directly overseas?
Through SDRs, investors can gain access to an underlying security which is currently listed on an overseas exchange. Some benefits of SDRs include:
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Cost efficiency: Transactions are in Singapore dollars instead of foreign currencies, eliminating the need for currency conversion.
Convenience: Seamlessly trade the SDRs during SGX’s regular trading hours and days.
CDP Custody: SDRs are also held under custody with the Central Depository (CDP), a regulated custodial system and processing agent for corporate actions. Corporate actions relating to the SDR are announced on the SGX website by the SDR Issuer, ensuring transparency.
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3. How do SDRs work?
An SDR is issued on an unsponsored basis by an intermediary referred to as an SDR issuer that does not have a formal agreement with the underlying company. Each SDR represents a specific number of securities listed on an overseas exchange and SDR issuers hold the underlying securities on trust (deposited with a custodian). The underlying securities are registered in the name of the custodian and held for the benefit of the SDR issuer.
The SDR issuer then issues SDRs for trading on the SGX-ST, following market rules. The SDR and its underlying securities are fully convertible, facilitated by the SDR issuer. Terms and conditions are set out in a programme disclosure document.
Investors in SDRs (or SDR holders) will be entitled to certain benefits attached to the underlying securities, such as dividends and other non-cash distributions.
4. What markets or underlying companies are available for trading via the SDR shelf today?
SGX launched our inaugural batch of Thai SDRs in May 2023, offering investors an opportunity to gain exposure to some of Thailand’s largest companies including Airports of Thailand (AOT), CP All (CPALL) and PTT Exploration & Production (PTTEP), which are riding on the post-Covid reopening and energy themes. The three household names have attracted good interest from local investors with turnover doubling and assets under management (AUM) tripling since launch.
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Following the encouraging initial reception from investors, SGX together with SDR issuer Phillip Securities has added five more Thai SDRs – Advanced Info Service (AIS), Delta Electronics (Thailand), Gulf Energy Development (Gulf), Kasikornbank (KBank) and Siam Cement Group (SCG), to meet investor demand for a wider selection of SET50 Index constituents across a broader range of sectors.
5. How were the five new SDRs’ underlying names chosen?
The new additions are diverse across the financial, telecommunication, materials, technology and utilities sectors. They include Kasikornbank and Advanced Info Service (partially owned by Singtel) from the financials and telecommunications sectors (the 2nd and 3rd largest SET50 sectors) and Siam Cement Group in the materials sector.
Coupled with the inaugural batch of SDRs, the eight Thai SDRs will provide exposure to all major sectors covering over 40% of the SET50 Index.
The new set of SDRs includes tech companies which may benefit from the global trends in electric vehicles and automation. It also includes companies in the energy sector that may continue to gain investor attention amid an uncertain geopolitical environment. Delta Electronics (Thailand) is one of the most valuable among Thailand-listed companies and a subsidiary of Delta Electronics Inc (Taiwan). Gulf Energy Development is one of the leading energy producers in Thailand which recently announced a collaboration with Singtel and Advanced Info Service to develop data centres in Thailand.
6. Which SDR has the most retail interest?
Since its launch, the uptake of the SDRs has been encouraging with collective daily trading turnover exceeding $300,000 and AUM tripling (as of Feb 2024), reflecting investor interest.
Individual investors have been net-buying all three initial Thai SDRs with CPALL and AOT SDRs attracting the most interest from buy-and-hold investors. PTTEP SDR is most actively traded due to higher share price volatility and sentiments around oil prices. As Asean’s largest listed petroleum exploration and production company, PTTEP sees greater trading activity in tandem with oil price movements.
7. Thailand’s stock market was one of the worst-performing markets regionally in 2023, what are some market expectations for the year ahead?
The months of political uncertainties, slower-than-expected tourism recovery and rising US interest rates throughout 2023 impacted market sentiments in Thailand. Despite the challenging past year, some key themes that the market will look forward to this year are:
Continued recovery in tourism: International tourist arrivals to Thailand exceeded 28 million in 2023 and more than doubled compared to 2022. However, tourist arrivals remain below its peak of 40 million in 2019. According to the Kasikorn Research Centre, the country could receive 36 million tourists in 2024. The estimates are based on the 6.4 million arrivals recorded in the first two months of 2024, a y-o-y rise of 50%, and attributed to Thailand’s improving economy and the government’s short- and long-term tourism promotion policies such as the visa-free policy for visitors from China, India and Taiwan.
Beneficiaries of stimulus measures: A THB500 billion ($18.5 billion) handout scheme to stimulate the economy could boost consumption spending in Thailand when implemented. Apart from the digital wallet, Thailand’s government has also approved tax cuts on alcoholic beverages and entertainment venues to boost tourism.
Interest rates: The Bank of Thailand (BoT) raised its benchmark interest rate to a 10-year-high of 2.5% in September 2023 and is expected to keep its rate unchanged as of its latest February 2024 meeting. Analysts expect BoT to start cutting the rate in the second half of the year.
8. Are there plans to expand the shelf to include underlying companies of other markets?
There are plans to expand the pipeline of SDRs and the selection will be based on investor demand. More SDRs will enable investors to build and enhance their regional portfolios from the convenience of a single exchange acting as an access point into other markets.
9. Can investors who own the SDRs still participate in the corporate actions of underlying companies?
The SDR issuer will use reasonable endeavours to pass on the benefits of the corporate actions to SDR holders. The ability to participate in corporate actions will be offered whenever legal or practicable to SDR holders, subject to the terms of the SDR, laws, regulations and conditions imposed by the underlying company.
Whenever the underlying company announces a corporate action event that results in distributions, the SDR issuer will make a corresponding announcement on SGX to inform investors of how it will handle the corporate action for the SDR. Investors should look out for these announcements about the SDR on the SGX website.
When an underlying company makes a cash distribution, the SDR issuer will make a distribution through CDP. This is after it converts the distribution proceeds into Singapore dollars and deducts any applicable corporate action fees, expenses and taxes. SDR holders will receive the distribution in Singapore dollars.
For more, investors may refer to the SDR investor guide available on SGX’s website and the SDR issuer’s programme disclosure document for examples of how the SDR Issuer may treat the different corporate action events.
10. Where can investors find more information or company news on the SDRs and underlying companies?
Relating to the underlying companies of the SDRs, investors should stay informed by checking the websites of the underlying company or the Stock Exchange of Thailand’s (SET) website for company announcements as part of their listing obligations to the SET. The SDR issuer will neither send nor publish filings by the underlying companies. The underlying companies are not regulated by SGX and do not publish any announcements on SGX.
The SDR Issuer will announce the following events on SGX. These announcements will be made available on the SGX website under the section on company announcements. These include:
• Corporate actions about the underlying non-voting depository receipt (NVDR)
• Removal of quotation of the SDR from the SGX-ST
• Material changes to the information set out in the SDR programme disclosure document
• Changes to the custodian
• Termination of the SDR
• Changes to fees and charges
• Closure of the transfer books of the SDR issuer
Emelia Tan is director of research and FinLit at SGX Group
