October 3, 2013 8:20 pm

The globalisation of investment has diminished GDRs

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A Russian credit card provider founded by an entrepreneur who loves cycling and admits “I don’t know how to manage a company if I can’t control it” is coming to London.

Oleg Tinkov, who made his money in electronics stores before moving into frozen food, beer, and pizza restaurants, plans that TCS, his online-only card business with its small-town clients, should raise up to $750m in an initial public offering.

Though they seemed like a big deal at the time, the successful IPOs of household names such as Direct Line and Countrywide are positively humdrum in comparison.

But the impending arrival of TCS stops short of a full-blown application for a premium listing, as it comes in the form of global depositary receipts (GDRs).

In turning to GDRs to move beyond its home market, the Russian company is joining a select few.

According to analysis by Dealogic, there have been only two issuances of GDRs in London so far this year, compared with eight last year and as many as 35 back in 2006. Globally, the numbers are also down.

The total value of the deals has similarly slumped: the $999m in London this year compares with almost 20 times that amount seven years ago.

GDRs enable a company to seek overseas investors if it is listed on an exchange that does not provide much in the way of liquidity. The route also has the advantage of being relatively cheap, and a possible stepping stone to a premium listing.

Yet GDRs feel curiously old-fashioned. Yes, in the days when it would have been racy for a UK institution to put money into a company based, say, in Moscow or Rio de Janeiro, there was a rationale for providing a City listing. But now the most amateur retail investor can access exchanges across the globe and the London market has shown widespread institutional enthusiasm for companies from a variety of emerging markets. GDRs have lost much of their purpose.

Policing payday lenders

If a trade association can sound positive about a regulatory crackdown, then the new regime is probably too tame. Plans by the Financial Conduct Authority to reform payday lending don’t go far or fast enough.

The new limit on how many times a loan can be rolled over is valuable – research suggests that just over one-quarter of loans are rolled over yet they account for almost half of lenders’ revenues.

Yet the new restriction on lenders using continuous payment authority (CPA) to reach into borrowers’ bank accounts feels limp. According to a government-commissioned survey, one in three consumers said CPA was not clearly explained, while more than half were not told how to cancel the arrangement.

And don’t hold your breath for immediate change. The FCA takes charge of consumer credit in April, but these two changes will not come into force until July. In some circumstances, enforcement action will be delayed until October next year. All this for a regulatory shift announced back in January 2012.

The FCA says taking charge of the 50,000 or so consumer credit companies will triple the number of firms it regulates, and so everyone needs time to adjust. That time will be well spent only if monitoring and enforcement are set up to be rigorous. The 150 staff looking after credit at the Office of Fair Trading, which oversees this sector at the moment, and the 695 in the FCA’s supervision division, will need reinforcements.

More powerful than its predecessor, the FCA should be able to make its standards stick: but only if it is looking hard enough and in the right direction.

Win some, lose some

Wins for Aston Villa and West Bromwich in the Barclays Premier league last weekend were bad news for more than the two Manchester clubs they defeated. Because punters tend to put money on wins and losses, bookies do well when teams draw. So far this season the number of draws is 40 per cent down on last year.

Those scorelines – and the July heatwave – have hit William Hill. Operating profit down 31 per cent in the past three months was £20m below what the group had expected, and it may not be able to make up the shortfall promptly.

When Ladbrokes warned on profits last week, its shares slid more than 7 per cent as it admitted some self-inflicted errors. Yet William Hill’s news received a tiny share price rise. Its fan club points to the strong online and mobile business. For spectators, the post-match analysis is that this sector is vulnerable not just to a bit of weather but also to a run of form.


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