october 20, 2009
DESCRIPTION
Access to US Capital Markets: Opportunities in Challenging Times Presented by Nuno da Silva, DR Head of Latin America & Jason Paltrowitz, DR Head of Global Capital Markets. Financial Markets and Treasury Services Sector. October 20, 2009. Section I. BNY Mellon Overview. 2. - PowerPoint PPT PresentationTRANSCRIPT
Access to US Capital Markets: Opportunities in Challenging Times
Presented by Nuno da Silva, DR Head of Latin America &Jason Paltrowitz, DR Head of Global Capital Markets
October 20, 2009Financial Markets and Treasury Services Sector
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Section I.
BNY Mellon Overview
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Highlights of BNY Mellon
$20.2 trillion assets under custody and administration
$928 billion in assetsunder management
$11 trillion in outstandingdebt serviced
Strong financial ratings: S&P AA-; Moody’s Aa2; Fitch AA-
As of December 31, 2008
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Why is BNY Mellon Hosting this Seminar?
BNY Mellon knows the Level I ADR Universe and is fully committed to
its growth and development
BNY Mellon’s Experience with Level I Programs is Unparalleled
523 Clients77%
Level I Sponsored Program Market Share
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Section II.
Demystifying ADRs
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ADRs split the liquidity of my shares
ADRs are not needed anymoreLevel I ADRs are for small, unknown companies
A Level I will make my companie more visible
There is no demand for Level I ADRs
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Myth 1:
“ADRs are no longer necessary, because investors can invest in my local shares easily”
The importance of ADRs continues to grow
In 2008, investment and trading volume of ADRs reached record levels.
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US$ 4,4 trillion
ADR Trading Volume US$ Billions
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Myth 2:
“Level I ADRs are only for small, unknown companies”
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Many of the largest companies in the world have Level I ADR programs
Nestle Largest food company in the world
Volkswagen Largest auto company in Europe
BASF Largest chemical company in the world
Gazprom Largest Oil & Gas company in the world
Usiminas Largest steel producer in Latin America
JBS Largest meet producer in the world
Wal-Mart de Mexico Largest retail company
Level I ADR programs traded in the OTC market:
Myth 3:
“A Level I ADR program will enhance the visibility of our company in the US”
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There is a key distinction bewteen “access” and “visibility”
Access and Visibility:
ADR Characteristics Investor Relations
DTC SettlementSettlement in US$Quoted in US$Real time quotationsFamiliar brokerage and clearing
Broker conferencesRoadshowsMedia relations/advertisingOTCQXInvestor events
ADR PROVIDES
IR INCREASES
ACCESS VISIBILITY+
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Myth 4:
“There is limited demand for Level I ADRs, so it’s not worth the effort”
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New Level I ADR Programs received over US$ 1 Billion
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Through 1Q09, 700 new Level I ADR programs attracted over US$ 1 billion
3,078 programs
No. of ADR Programs
More than US$ 1
billion in 1Q09
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Myth 5:
“An ADR program will split the liquidity of my shares”
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Empirical evidence shows that ADRs increase share liquidity
The average positive impact to liquidity of local shares is 48%:
Hundreds of ADR programs were analyzed between 1980-2007
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Section III.
ADR Overview
In 2008, DR program trading and investment reached record levels.
Depositary Receipt Market Highlights
• 2008’s trading value reached $4.4
trillion in U.S. and non U.S.-listed
programs as well as OTC-traded DRs,
exceeding the record set in 2007
• Issuers from 16 countries completed 41
initial public offerings (IPOs) and follow-
on offerings in 2008
Annual DR TradingU.S.-Listed
0
800
1,600
2,400
3,200
4,000
4,800
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
0
20
40
60
80
100
120
Value ($bb)
Volume (bb)
• At year-end more than 2,900 DR programs from 80 countries were available to
investors, up from 2,200 a year ago
In 2008, DR program trading and investment reached record levels.
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Depositary Receipt Market History
0
500
1,000
1,500
2,000
2,500
1930 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 2007 2008
Tota
l N
um
ber
of
DR
Pro
gra
ms
Source: BNY Mellon; December 31, 2008
2003 to 2007 - Markets Rebound and Grow
Falling U.S. dollar, low interest rates drive DR prices
International equity markets outperform and U.S. investors follow – rise of BRICs
Depositary banks increasingly act as consultants
2001 to 2002 –Markets Consolidate
Technology bubble implosion
Corporate Governance reemphasis (Enron, WorldCom)
Greater demands placed on a depositary banks
1990 to 2000 – Explosive Growth in the DR Market
Structural changes, decimalization and tighter spreads
DRs used in privatizations, capital raisings and M&A
Depositary role largely administrative and operational
1930 to 1989 –DR Market largely unsponsored and investor driven
Depositary role totally administrative
and operational
2008 – Unprecedented Volatility
Regulatory change
Unsponsored growth – more DR supply
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All DR Programs From Latin America
206
46
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All DR Programs Global
241
276
273
1331
All DR Programs From Brazil
102
10
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BNY Mellon Depositary Receipt
•63% of Global DR Programs
•74% of Latin American DR Programs
•78% of Brazil DR Programs
Leader in All Relevant Markets
BNY Mellon J.P. Morgan Citibank Deutsche Bank
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Section IV.
Introduction to Level I ADR Programs
mericanA
Global
What Are Depositary Receipts?
• Can be used to list on stock exchanges around the world
• Can be used to raise capital (IPOs or follow-on offerings)
• Can be adapted to meet specific marketing needs
DRs
Negotiable securities issued by a depositary bank that represent a
non-U.S. company's publicly traded equity.
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Creating Depositary Receipts from Local Market
Instructs Brazilian Broker to Purchase
Ordinary Shares
Broker Purchases Ordinary Shares on Bovespa and Delivers Ordinary Shares to Local Custodian
DTCC Delivers DRs to Broker’s Custodian or Euroclear / Clearstream credits participants account
Local Custodian Takes Delivery and Confirms to Depositary
Depositary Creates DRs and Delivers to Depositary Trust & Clearing Corporation or Euroclear / Clearstream
T+3 Settlement
Brazilian BrokerU.S. Broker
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Depositary Receipt Benefits
Issuer Benefits
Access deep international capital markets
Increase share valuation and liquidity
Diversify and broaden shareholder base
Prepare for future acquisitions
Express international commitment
Heighten profile for products and services
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Depositary Receipt Benefits
Investor Benefits
Access over 2,000 DRs from 76 countries
Obtain quotes in U.S. dollars
Receive dividends in U.S. dollars
Clear and settle in globally recognized systems
Overcome foreign investment restrictions
Access improved information in English
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DRs Provide Access to Deep Capital Markets
- Brazilian Institutions
- Brazilian Retail
- US and European Institutions with presence in Brazil
144A/RegS
- Qualified U.S. Institutional Buyers (QIBs – with over $100 MM in assets) and European investors with clearing and settlement structures in Brazil
Level II & III DR
(SEC Registered & Listed)
- US and European Institutional Investors that prefer SEC-registered securities and familiar trading and settlement structures
- US Retail Investors
Bovespa
Level I DR (OTC)
- Sophisticated US Retail Investors
- US and European
Institutions that don’t have clearing and settlement structures in Brazil but seek Brazilian equity opportunities
- Mutual/Pension Funds that are required to hold U.S. DTC securities
- Mutual/Pension Funds that are required to hold U.S. securities
DRs will increase access to institutional and retail investors
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Introduction - Level I DR Program
Level I DRs:
Level I DR programs offer an easy method for reaching U.S. investors.
Level I DRs trade in the “Over the Counter” (OTC) market with prices published in Pink Sheets and on some exchanges outside the U.S.
A sponsored Level I program allows non-U.S. issuers to realize the benefits of issuing a U.S. publicly traded security without changing their reporting processes.
In order to establish a Level I program, the Company does NOT have to:
• Comply with the Sarbanes-Oxley Act.
• Reconcile to U.S. GAAP
• Change its current financial and disclosure reporting procedures. (U.S. SEC disclosures)
• Issue any new shares for the DR program
Size of the Market:
The sponsored Level I DR market is the fastest-growing segment of the DR business. Of the approximately 2,100 DR programs available more than 700 of these are Level I facilities.
OTC Depositary Receipts Enhance Valuation and Liquidity
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Value Added - Level I
0.02.04.06.08.0
10.0
-20 0 20 40 60 80 100 120 140 160 180 200 220 240 260
Event Trading Days
Val
ue R
eact
ion
(%)
Value Added - Level I
• After year one, OTC DRs raised ordinary
share liquidity by 23% on average
• OTC DRs increased ordinary share price
by an average of 10%
• BNY Mellon, both by its dominance
and scope of services, holds a
comparative advantage in driving both
issuer and investor value and increasing
the liquidity of local shares
The research resulted in a few conclusions relating to “Sponsored” OTC DRs:
Oxford Metrica, an Oxford University-based independent strategic advisor, conducted research on the DR marketplace which provided “empirical insight on the extent of the value and additional liquidity generated by DRs, and the key drivers of this process.”
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Level I DR Program
Wal-Mart de Mexico Mexico
Grupo Modelo Mexico
JBS Brazil
Cyrela Brazil Realty Brazil
Usiminas Brazil
MMX Brazil
Inv. Aguas Metropolitanas (IAM) Chile
Sivensa Venezuela
Cementos Lima Peru
Banco Hipotecario Argentina
ISA Colombia
Graña y Montero - GyM Peru
Sare Holding Mexico
Hipermarc Chile
International Level I Issuers Latin American Level I Issuers Country
Heineken Volkswagen
BNP Paribas Lukoil
SAB Miller Mitsubishi Corp.
Deutsche Lufthansa Nestle
Foster's Nintendo
Gazprom Societe Generale
adidas BASF
Rolls Royce Roche
L’Oreal BAE Systems
Air China Olympus
Zurich Financial Serv Air France-KLM
Clarins El Al Israel Airlines Ltd.
Sega-Sammy Antofagasta
Sharp
Many of the world’s largest and most respected companies currently have sponsored Level I ADR programs trading in the U.S. OTC market.
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Establishment – Level I DR Program
Benefits:
Simple to establish and maintain No cost to the Issuer Minimal reporting No additional disclosure Access to broad and diversified shareholder base – European and U.S. institutions as well as U.S. retail Cost efficiencies for investors Creates shareholder value
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Establishment – Level I DR Program
Establishing a Level I DR Program is Easy:
A Level I DR program is easy to establish and does not require extensive management time or commitment. To establish a sponsored Level I DR program, three principal documents are required:
12g3-2(b) Information Exemption - Is the principal provision used by Foreign Private Issuers to claim exemption from U.S. registration and reporting requirements.
Deposit Agreement - A standard service contract between the Company, BNY Mellon and DR holders which details the responsibilities of each party.
Form F-6 - This is a simple registration statement of DRs which includes the signatures of a majority of the Company's board of directors.
The Level I establishment process takes approximately 6 weeks, and can be achieved at no cost to the issuer.
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Establishment Timetable – Level I DR Program
Level I ADR Establishment Timetable
Week Party Responsible
Item 1 2 3 Appoint depositary bank and U.S. lawyers
Issuer
Confirm automatic 12g3-2(b) exemption compliance
Issuer & Lawyers
Prepare DR certificates, obtain CUSIP number, request DTC eligibility
Depositary, Issuer & Lawyers
Prepare / submit Deposit Agreement and form F-6 to SEC
Depositary, Issuer & Lawyers
NASD and DTC are notified of effectiveness
Depositary
DR trading commences Brokers, Investors Broker notifications are sent and posted on Internet
Depositary
Distribute announcements to financial community and media
Depositary* Above timetable refers to US portion of documentation. CVM approval generally takes 30 days
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Section V.
Market Demand for Level I ADRs
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Opportunity to Diversify Shareholder Base & Improve Liquidity
Expanded universe of potential “target” investors
Additional investment by larger institutions
Smaller, long-term institutional investors
Managed Account Managers
Retail Investors
Improve Liquidity
More investors potentially entering and exiting your stock/DR
Arbitrage traders – provide base of increased liquidity
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U.S. Investor Tiers
Tier Equity AUM DR Opportunity
$11.0 trillion invested by 77 U.S. firms.$2.2 trillion international of which $358 billion is in DRs (16% DRs).
$3.6 trillion managed by 163 U.S. firms.$628 billion international of which $173 billion is in DRs (28% DRs).
$2.2 trillion managed by 727 U.S. firms. $378 billion international of which $98 billion is in DRs (26% DRs).
$628 billion managed by 3,126 U.S. firms. $76 billion international of which $26 billion is in DRs (34% DRs).4 < $1b
2 $10b - $50b
3 $1b - $10b
Access to the Full DR Investment Market
1 > $50b
Larger institutions tend to invest in both the home market and DRs. Many smaller institutions use DRs to diversify internationally.
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Largest DR Holders and Level 1 Investments
Institution Name ADR Value ($mm) OTC Value ($mm) Share (%)1 Capital World Investors (U.S.) 15,938.5 2,252.7 14.12 Fisher Asset Management, LLC 7,959.6 2,202.4 27.73 Tradewinds Global Investors, LLC 8,293.3 2,033.3 24.54 Thornburg Investment Management, Inc. 4,632.9 1,347.7 29.15 Barrow Hanley Mewhinney & Strauss, Inc. 2,345.7 1,212.2 51.76 Barclays Global Investors N.A. 13,576.8 1,005.7 7.47 Wellington Management Company, LLP 13,670.6 804.4 5.98 Van Kampen Asset Management 4,093.4 697.1 17.09 The Vanguard Group, Inc. 2,005.0 676.3 33.7
10 BlackRock Investment Management (U.K.), LTD 4,868.1 576.7 11.811 Fidelity Management & Research Company 20,109.2 560.2 2.812 Delaware Investments 4,080.0 544.1 13.313 Aberdeen Asset Management, LTD (U.K.) 2,829.8 511.0 18.114 Brandes Investment Partners, LLC 10,081.4 487.2 4.815 Templeton Asset Management, LTD 2,413.2 444.7 18.416 AllianceBernstein, L.P. (U.S.) 10,909.5 441.7 4.017 Dodge & Cox 17,327.2 429.6 2.518 Schroder Investment Management (UK), LTD 1,985.2 318.7 16.119 Lazard Asset Management, LLC (U.S.) 5,622.2 251.7 4.520 Capital Research Global Investors (U.S.) 12,158.2 248.7 2.0
Of the top 50 institutions holding DRs, almost $18.5 billion is invested in Level I companies.
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Access to Additional Investor Segments
Retail (individual investors):
At the end of 2008, U.S. retail investors held $5.5 trillion in equities, either directly or through mutual funds.
Of this, $2.7 trillion were foreign equities.
Managed Accounts:
At the end of 1Q09, managed accounts assets under management was $675.5 billion
Some of the largest managed accounts institutions include:
Legg Mason ($32.7 billion AUM) Blackrock, Inc. ($29.4 billion AUM) Allianz Global Investors ($24 billion AUM) Lord Abbett & Co. ($13.1 billion AUM) Brandes Investment Partners ($12.4 billion AUM)
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Investor Demand for International Level I Programs
Director of Managed Accounts ($2.2 billion AUM):
“Yes, we would like to see more OTC DR programs. Anything that expands the universe of DRs is a good thing.”
Portfolio Manager ($26.6 billion AUM):
“We would like to see more OTC DRs. We manage private accounts, which in some cases are ADR-only, and in that case it would be beneficial to have them.”
Trader ($7.4 billion AUM):
“We would like to see OTC or listed DRs because it would benefit accounts that cannot hold ordinary shares. Also, it would help our non-QIB accounts with increased investment choices.”
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Sell-side
Sell-side will not initiate coverage because of a Level I program.
However, the sell-side can look positively upon the establishment of a Level I because of the liquidity upside:
When an issuer recently started trading OTC, UBS published a report stating that the move to an OTC DR program is a “positive for the stock as it should improve the liquidity of the shares.”
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BNY Mellon Support
25 global capital market experts (largest team in the industry)
Located in major business centers of New York, London and Hong Kong
Specialists help you navigate the capital markets efficiently and effectively
Increase exposure and liquidity of Issuer DR Programs Provide global best practice Investor Relations advisory services Leverage sell-side and buy-side intelligence and contacts Produce Investor Relations/Thought Leadership studies