Guide to Singapore Depository Receipts (SDRs): Gain access to Thai blue chip companies

What happened?

From 1 April 2024, five new Singapore Depository Receipts (SDRs) will be introduced on the Singapore Exchange, offering local investors access to a wider range of Thai blue chip companies. 

The newly added SDRs are Advanced Info Service (AIS), Delta Electronics, Gulf Energy Development, Kasikorn Bank (KBANK) and Siam Cement. 

Singapore Depository Receipts (SDR) were launched as a new product on the Singapore Exchange in May 2023, when investors were able to trade Singapore Depository Receipts of Airports of Thailand (AOT), CP All (CPALL) and PTT Exploration & Production (PTTEP) on the SGX. 

With the latest additions, investors can invest in companies across the financials, communications, technology, utilities and materials sectors in Thailand. Together, these eight companies represent over 40% of Thailand's benchmark SET50 index by constituent weightage. 

If you are new to Singapore Depository Receipts, let us find out more about this product and what we should consider before investing in them. 

What are Singapore Depository Receipts (SDRs)?

If you are an investor of Alibaba and Nio on the New York Stock Exchange, you might be familiar with American Depository Receipts (ADRs).

ADRs allow investors in the US stock market to buy shares of non-US companies easily, by issuing the ADRs through an American bank or broker. 

Singapore Depository Receipts (SDR) are a new product on the Singapore Exchange with the same objective allowing investors in the Singapore stock market easy access to stocks that are listed in overseas exchanges.  

By investing in a SDR, you will be able to gain access to an underlying stock which is currently listed on an overseas exchange.

What this means is that rather than having to buy the stock through an overseas stock exchange, you will be able to do it on the Singapore Exchange (SGX). 

What are the benefits of Singapore Depository Receipts?

#1 – Global Access

The key advantage of SDRs is the opportunity to invest in overseas listed companies that might be hard to access currently. 

For example, while most stock trading platforms offer trading in US and Hong Kong stocks currently, there are less platforms that offer the ability to buy stocks in regional markets such as Thailand and Indonesia. 

#2 – Lower cost

The other benefit of being able to invest in overseas listed companies via a SDR is the potential cost savings from the lower brokerage fees incurred. 

When investing in SDRs, you will be charged local brokerage and exchange fees. Looking at the fees charged by stock trading platforms, we typically see that there is a lower commission fee charged to trade stocks on the Singapore exchange compared to overseas exchanges. 

#3 – CDP custody

As SDRs are custodised with the Central Depository Receipt (CDP), you will be able to find your holdings in the SDR reflected in your CDP statement, just like you would for your Singapore stock holdings that are held with CDP. 

How do Singapore Depository Receipts work?

A SDR is issued on the SGX by an intermediary, which in this case can be a bank or stock broker. This intermediary is referred to as the SDR issuer, which is responsible for the setup and administration of the SDR programme. 

The SDR issuer holds the underlying stock on trust for investors of the SDR. Each SDR is backed by a specific number of underlying stock listed on an overseas exchange. The SDR and underlying stock are convertible. 

The underlying stock is deposited with a custodian in the overseas market. By doing so, the underlying stock is registered in the name of the overseas custodian, and is held on behalf of the SDR issuer. 

It is important to note that the SDR issuer has no formal agreement with the underlying company. 

The SDR issuer will then issue the SDR for trading on the SGX. It will also facilitate conversion between the SDR and the underlying stock. 

Through this setup, investors in the SDR will be able to gain exposure to the underlying stock which are held with the overseas custodian. 

As an investor, you will also be entitled to certain benefits that may come through from the underlying stock. 

What are Thai SDRs?

The first SDRs to be listed on the SGX will be Thai SDRs, offering you an opportunity to invest in Thailand’s blue chip companies. 

The follows a partnership between the SGX and the Stock Exchange of Thailand (SET) to expand investment options by investors through the Thailand-Singapore DR linkage. 

Thai SDRs are represented by Non-Voting Depository Receipts (Thai NVDR) of a company listed on the Stock Exchange of Thailand (SET). 

A NVDR is listed and traded on the SET, and is issued by a subsidiary of the SET to facilitate trading in the underlying stock. It carries the same price and benefits as its underlying shares, but do not carry voting rights. 

Will I have voting rights as a holder of Thai SDRs?

As a SDR holder, you will not be extended voting rights and will not be able to participate in the shareholder vote. 

Will I be eligible for dividends as a holder of Singapore Depository Receipts?

Yes, you will be eligible for dividends paid out by the underlying company as a SDR holder. 

When a dividend is made by the underlying company, the SDR issuer will convert the distribution proceeds into Singapore dollars, deduct any applicable corporate action fees, expenses and taxes, and distribute the proceeds through CDP.

As a holder of the SDR, you will receive the distribution in Singapore dollars in your Singapore bank account maintained with the CDP. 

However, your payment will come through later than the payment date set by the underlying company as the SDR issuer may need time to process the distributions. 

How do I convert my SDR into the underlying stock?

Yes, you will be able to convert the SDR into the underlying stock. However, you will need to have a custodian to hold your underlying stock in the overseas exchange.

If you wish to convert the SDR into the underlying stock in the overseas exchange, you will need to submit a cancellation request through your stock trading platform. 

Thereafter, you will need to instruct your overseas custodian to expect receipt of the underlying stock.

Once the SDR issuer receives the SDR, it will proceed to cancel the SDR and deliver the corresponding underlying stock to your overseas custodian. 

What are the risks of Singapore Depository Receipts?

By investing in a SDR, you will effectively be putting your money into an underlying stock that is listed overseas. Hence, your investment would be subject to the risks relating to the overseas market and underlying stock.

It is important to also take note of the foreign currency exchange rate risk. Remember that your SDR will be traded in Singapore dollars, and the underlying stock will be in a foreign currency. In the case of Thai SDRs, the underlying stock will be traded in Thai Baht. 

As a result, the trading price of the SDR and the value of distributions you will receive will be affected by fluctuations in the exchange rate. 

For example, if the Thai Baht were to weaken significantly against the Singapore dollar, you may incur capital losses or receive less distributions in Singapore dollars. 

How to buy Singapore Depository Receipts?

SDRs trade on the Singapore Exchange in Singapore Dollars (SGD). The same trading hours for the Singapore Exchange apply to the trading of SDRs, which is 9 am to 5.16 pm SGT currently. 

SDRs are tradable by all investor types, as they are classified as Excluded Investment Products (EIP). While this product is available to anyone with a basic understanding of financial instruments, do make sure that you are aware of the product characteristics and risks before you invest in it. 

You will be able to buy Singapore Depository Receipts directly through a stock trading platform which offers trading on the Singapore Exchange. 

Where can I find out more about Singapore Depository Receipts?

If you are keen to learn more, visit the SGX product page or ask us at the Beansprout Telegram group. 

To learn more about Airports of Thailand, read our analysis here. 

To learn more about CP All, read our analysis here. 

To learn more about PTTEP, read our analysis here.