The New York Stock Exchange on the Joy of Depositary Receipts (part 2)
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Alex Ibrahim is Vice President and Regional Head of Latin America, Bermuda, and the Caribbean for the Global Corporate Client Group of NYSE Euronext (NYSE: NYX), and manages the Exchange’s relationships with over 150 companies in the region. He discusses depositary receipts (foreign stocks traded on local exchanges) and the role DRs play in global investing.
[continued from part 1]
Slepko: How do you measure the success of an [American depositary receipt] partnership?
Ibrahim: Liquidity is something you can touch, but I think there are other elements to why a program is successful. A lot of companies come to the US market because they want to diversify their shareholder base, be quoted in dollars, and use the ADR mechanism for other activities.
I think what we offer is a platform that provides access to a pool of liquidity that would otherwise not be able to go to the local market.
Recently, we had Brazil’s AmBev (NYSE: ABV) here to celebrate their 20 year anniversary of listing. Since listing, their liquidity has increased dramatically. Their market cap has recently surpassed some of the largest companies in the region. So, their listing has helped make them a global player.
Slepko: Tell me about the listings from Latin America this year.
Ibrahim: We recently listed Grupo Financiero Santander Mexico (NYSE: BSMX), a Mexican bank, which was the second largest IPO in the US market. This year we listed four companies from Latin America, including Santander Mexico, which is fantastic. We also listed a Peruvian cement maker Cementos Pacasmayo, a Chilean supermarket retailer Cencosud (NYSE: CNCO), and Brazil’s largest investment bank, BTG Pactual, on our European platform NYSE Alternext inAmsterdam.
Slepko: Why have these ADRs been successful? Are people so depressed about US investments that they are willing to throw out their stereotypes about Mexico and go all in?
Ibrahim: I think investors are looking for opportunities, and if you look at the Latin America region, it’s growing at 4-5% a year. It’s hard to find other markets growing as fast. You may find it in the Asian region, but there aren’t many ADRs from Malaysia, Indonesia, or many other emerging Asian markets, so investing in companies from those regions is difficult. Whereas, there are many Latin American companies already listed in the US, many of which are already household names, so investors are more familiar with this region. This has helped make diversification and transactions related to Latin America so successful.
Slepko: [You’re currently on the board of the Brazilian American Chamber of Commerce and the North American Chilean Chamber of Commerce.] So, what about the old saying that Brazil will always be the country of the future, is that no longer true? Is this Brazil’s decade?
Ibrahim: I think Brazil is getting there, but it has to do a few things to become more attractive. The infrastructure is a big problem there, but it is getting better.
Slepko: Chilean companies are everywhere, why is Chile so successful? It’s barely a country, it just clings to the edge of the Andes.
Ibrahim: Chile is a very sophisticated society. People are highly educated, they understand financial markets, they have great technology, and the country as a whole is doing extremely well – growing at 5-6% this year. But they are very small, so they need to expand outside their home country to keep growing and deliver value to their shareholders. So you see companies in retail, technology, and mining going abroad.
This year we listed Cencosud which is the largest retailer in Chile. But if you look at their revenue, most of it comes from Brazil, Colombia, Peru, and Argentina. So they are really a pan-regional company. Cencosud is not the only one. Enersis, a utility company based in Chile, is also active in other Latin American countries. You are going to see in the near future more companies coming from Chile to the US because they need the ADR mechanism to do acquisitions – not only in Latin America, but in Europe and the US.
Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend NYSE Euronext. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.