TAPPING FOREIGN LIQUIDITY AND GLOBAL CAPITAL MARKETS

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TAPPING FOREIGN LIQUIDITY AND GLOBAL CAPITAL
MARKETS
Mahmoud Salem, VP
Solutions for Investors and Issuers WorldwideTM
Solutions for Investors and Issuers Worldwide is
a trademark of The Bank of New York
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WHAT IS IT ALL ABOUT?
For investors prohibited or limited from owning
non-US shares, ADRs offer access to an expanded
universe of securities hitherto unavailable. Even
for investors with access, ADRs reduce
transaction costs, eliminate global custodian
charges, and remove currency fluctuations and
language barriers. Beyond the practical benefits,
however, ADRs offer significant potential for
improved liquidity, enhanced performance and
greater portfolio diversification. The increased
information flow and disclosure forthcoming from
non-US firms with US-listed ADR programmes is not
trivial, and the markets responds positively to
the raised reporting standards and transparency.
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HISTORY OF DEPOSITARY RECEIPTS

• Developed in the 1920s.
• Established to facilitate foreign investment by
  large U.S. institutions.
• 1950s Several large multinationals started to
  list in the U.S.
• 1970s Programs developed for mining companies.
• 1980s Market experiences unprecedented growth.
• 1990s Privatisations, Global Offerings.

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WHAT IS AN ADR?

• American share certificate issued by an American
  bank representing a South African share held in
  custody in South Africa.
• Traded on US stock exchanges like any other
  American share.
• Required for
• Listing by foreign issuer
• US public share offering
• Acquisition of US company in share exchange

DATES BACK TO 1927
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WHY IS IT NECESSARY?

• Regulatory
• DTC eligibility
• Physical certificates
• Transfer regulations.
• Administrative
• Institutional investor investment charters
• Retail investor management
• Execution and custody regimes.
• Cost US custody vs. Global custody charges.

CUSTOMIZATION TO US NORMS
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HOW ARE THEY TRADED?
ADRs trade, like all US securities, in US
markets, in US trading time, in dollars, settling
in DTC.


US Investor
US Broker
NYSE, NASDAQ or OTC
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WHERE DO THEY COME FROM? THE LOCAL MARKET
US Broker
SA Broker
Same day issuance
STRATE - SA
DTC - NEW YORK
Cancellations go the other way
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COMPARISON BETWEEN DIFFERENT TYPES OF ADRS
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PUBLIC OFFERING OF DEPOSITARY RECEIPTS
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ADR SUCCESS IN SOUTH AFRICA

• 2003 Trading Volume 25.6 billion - 632 billion
  total.
• South Africa 10th in the world.
• ADR investors own 5.04 billion.
• Between 0 and 80 of issued share capital.
• Up to 40,000 ADR holders each.

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ADRS IN SOUTH AFRICA
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CASE STUDY GOLD FIELDS UPGRADE TO FULL
LISTING

• Established Level-I ADR in May 1999 full
  listing on NYSE in May 2002
• 111,958,017 ADRs now in issue
• 23 of total shares in issue
• ADR Market Capitalisation 1.36 billion
• 6,968,950,417 traded in 2003
• 25,000 ADR holders

UPGRADED FROM UNLISTED TO FULL LISTING
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144A PRIVATE PLACEMENT OF DEPOSITARY RECEIPTS

• Advantages
• Short lead-in time
• No SEC registration
• Cost
• Disadvantages
• Limits investor base, liquidity and visibility
• Potential flowback
• Complex structures
• Possible discount-to-market

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CASE STUDY ORASCOM TELECOM 144A PRIVATE
PLACEMENT

• Established 144A Reg S ADR in July 2000.
• 78,628,198 ADRs now in issue.
• 18 of total shares in issue.
• ADR Market Capitalisation 598.6 million.

PRIVATE PLACEMENT
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CONCLUSIONS

• ADRs offer African companies a way to reach US
  investors.
• ADRs are a part of the US equity market, offering
  US investors a convenient way to own African
  shares.
• Not all ADRs are the same.