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Topics of Discussion
I. What is a Depositary Receipt
II. Types of Depositary Receipts
III. Who Invests in Depositary Receipts
IV. Why establish an ADR program with BNY Mellon
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A US Security
“ADRs (American Depositary Receipts) are US securities that represent shares of a non-US company in the US markets.
They are issued by a US bank against a holding of the underlying ordinary shares held in custody in the home market.
The Depositary Bank, which holds the shares, transmits to holders of the ADRs the rights associated with the shares (such as the vote and the dividend) according to the specific instructions laid out in a contract filed with the SEC.”
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A Fungible Security
Investors buy ADRs through their brokers just like any other stock.
Brokers have a choice of buying ADRs and/or buying Ordinary shares and converting these to ADRs with no delay as described below.
US investor
Broker
Delivery of 100,000 ADRs
BNYM 20,000 ADRs issued
80,000 ADRs are bought
In the US market
(20,000 ADRs are still missing)
20,000 ordinary shares*
Are bought on the JSE and
delivered on to BNYM account
Delivery of 80,000 existing ADRs
Delivery of 20,000 ordinary shares*
Purchase of 100,000 ADRs
* 1 ADRs equal to 1 share (1:1 ratio)
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A Security with Different Trading Options and Regulation
Sponsored ADR
Unsponsored ADR
NYSE
NASDAQ
AMEX
OTCQX
Pink OTC
Full
Registration
Exemption 12g3-2(b)
Market Issuer / SEC Security
Unsponsored ADRs always trade in the OTC market
OT
C M
ark
et
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1). Wait and see Facility is in place to allow investors to buy and hold the Issuer in ADR form
Monitor ADR activity and assess market reaction
2). Take control of the ADR facility Appoint Depositary Bank and negotiate Deposit Agreement
(contains instructions to transmit ordinary share rights to ADR holders)
Determine rights given to ADR holders
Passive monitoring of the ADR facility
3). Use the ADR program proactively Strategic objectives
IR outreach
Increase stock value
and liquidity
Options for Issuers
Attract new North American investors
Reduce shareholder concentration
Develop high net worth individuals and retail ownership
Increase liquidity of the stock
Enhance the Issuer’s visibility in the US
Enable North American employees to invest easily in the Issuer
Position the Issuer for an acquisition using stock in the US
Improve alignment with sector peers which have an ADR program
The More Involved the Issuer, the More Successful the ADR
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Costs None
BNY Mellon will pay all costs associated with the establishment of the program
There are no ongoing costs
Typically issuers sign a 5 year contract with us in order for us to recoup the costs
Regulatory Requirements Level 1 OTC ADRs have no regulatory requirements
12g3-2b exemption if you have an English website
Costs and Regulatory Requirements
Attract new North American investors Reduce shareholder concentration Develop high net worth individuals and retail ownership Increase liquidity of the stock
Enhance the Issuer’s visibility in the US Enable North American employees to invest easily in the Issuer Position the Issuer for an acquisition using stock in the US Improve alignment with sector peers which have an ADR program
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• First depositary bank to list DRs on an African exchange – LUSE ZDRs
• In discussions with Namibia and Botswana to list on their exchanges
• BNY Mellon, in conjunction with it's partners at the JSE and RMB, created a DR for South Africa with a view to attracting African companies looking for a more liquid equity and market as well as international companies looking to establish an African footprint
• Launched the first Indian DR (IDR) for U.K.’s Standard Chartered.
Innovation and Product Solutions
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US Investment in Foreign Equities
Source: BNY Mellon Depositary Receipts 2010 Year-end Market Review. Data provided by the U.S. Federal Reserve.
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US Investment in DRs
• $4.1trillion of the total $16trillion US investment, invested in non US equities
• $1.1trillion of the above estimated to be invested in DRs
Source: BNY Mellon Depositary Receipts 2010 Mid –Year Market Review. Data provided by the U.S. Federal Reserve.
Institutional Investors Holding Depositary Receipts
Top Depositary Receipt Institutional Holders
Source: Ipreo Holdings, LLC. Data as of December 31, 2010
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Institution Name DR Value
2010 ($mm) DR Value 2009
($mm) DR Value
% Change Total Equity
Assets ($ mm) DR Value as a %
of Total Equity
Fidelity Management & Research Company 31,077.1
29,928.4 3.8 511,150.9 6.1
BlackRock Fund Advisors (formerly Barclays Global) 22,128.7
25,915.8 -1.5 760,885.9 2.9
Dodge & Cox 19,285.9
18,499.1 4.3 110,999.8 17.4
Capital Research Global Investors (U.S.) 19,132.0
17,674.3 0.8 398,457.9 4.8
Wellington Management Company 17,084.8
17,622.5 0.3 269,190.9 6.4
Capital World Investors (U.S.) 15,190.6
16,773.9 0.9 387,916.0 3.9
BlackRock Investment Management (U.K.) 12,321.5
11,619.0 0.6 253,725.7 4.9
Lazard Asset Management (U.S.) 11,722.4
10,750.2 0.9 64,328.1 18.2
T. Rowe Price Associates 11,348.0
10,106.7 1.3 274,663.3 4.1
Aberdeen Asset Managers (U.K.) 11,314.8
9,596.3 1.8 51,547.5 22.0
Information Security Identification: Confidential
BNY Mellon Highlights
$25.5 trillion assets under custody and
administration
$1.2 trillion in assets
under management
$12.2 trillion
in outstanding debt serviced
$1 trillion of DRs serviced
As of March 31, 2011
48,000 employees in 36 countries
Acquired numerous businesses during the
recent financial crisis
Appointed by the U.S. Department of
Treasury to support the government’s
Troubled Asset Relief Program (TARP)
Strong financial ratings: S&P AA-;
Moody’s Aa2; Fitch AA-
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Depositary Receipts Market Leader
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Market Leader
• BNY Mellon is the market leader in Depositary Receipts with 63% market share of all
sponsored programs worldwide, 84% in South Africa, 77% of the Mining sector and
100% of all U.S.-Listed programs in South Africa.
First Depositary Receipt in South Africa
• BNY Mellon has conducted business in South Africa for over 35 years with an on-the
ground presence since 2003.
A World of Firsts
• BNY Mellon has served as depositary for the first-ever DR programs in over 40
countries including all four “BRICs” – Brazil, Russia, India & China.
Depositary Receipts Market Share - Globally South African Depositary Receipts Market Share U.S. Exchange Listed South African Depositary
Receipts Market Share
Depositary Receipts Market Leader – South Africa
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• 33 of JSE TOP 40 have an ADR program
• 21 of the 33 are sponsored and BNY Mellon is depositary bank for 17 of these
• 60 of JSE TOP 110 have an ADR program
• 32 of the 60 are sponsored and BNY Mellon is depositary bank for 25 of these
Given our large number of clients in South Africa we are very active in the region
• 3 dedicated RMs
• Full time RM and sales person in SA
• Annual conference
• Minimum of 2 IR networking lunches per annum
• Launch of PR program locally including educating the local financial media on DRs
• Reverse Roadshows
BNY Mellon Depositary Receipt Experience in South Africa BNY Mellon acts as depositary for 37 programs in South Africa, representing 84% market share. These
numbers include all U.S. Exchange listed programs from South Africa.
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6 Week Process
• BNY Mellon counsel sends draft Deposit Agreement and F6 to issuers counsel.
• Issuers counsel comments on draft Deposit Agreement.
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• BNY Mellon sends issuer the draft Letter Agreement (financial contract), Certificate of Authorized Persons and W-8 BEN forms.
• Once Deposit Agreement negotiations are complete, the Deposit Agreement and F6 are executed.
• Issuers Counsel provides BNY Mellon with the executed documents and the EDGAR codes to file the documents with the SEC.
• Once the Letter Agreement, Certificate of Authorised persons and W8 form have also been executed, BNY Mellon files the F-6 and Deposit Agreement with the SEC requesting immediate effectiveness.
• BNY Mellon announces the existence of the issuer DR facility to the investment community. In addition, the announcement is posted on the BNYM ADR website.
Process
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Benefits of a Sponsored Program with BNY Mellon WHY BNY Mellon
• Depositary Receipts is a key business for BNY Mellon.
• BNY Mellon is market neutral and has no conflicts of interest
• BNY Mellon is the market leader in SA, on the continent and globally
WHY establish a DR program
• No costs initial or ongoing
• No regulatory requirements for a level 1 OTC ADR
• Diversification of shareholder base
• Attraction of foreign investors
• Increase in liquidity
• Drive share price up