Frequently Asked Questions
ADR - American Depository Receipts
What is an ADR – American Depository Receipt?
An ADR is a negotiable security backed by shares belonging to a Company that is incorporated outside the United States on the Latin American markets.
The answer was helpful?  
Why did Grupo de Inversiones Suramericana register with the ADR Level 1 program?
- Access to international capital markets
- Greater liquidity and therefore a higher share valuation
- Increased equity by extending and diversifying its shareholder base
- Greater international recognition for the Company
- Obtaining and diversifying new funding alternatives
- Low-cost positioning on the US market
- Allowing international investors the possibility of acquiring Company shares
- Posibilidad Future prospects of scaling up to Levels II and III
- Reducing any uncertainty on the part of foreign investors with regard to legal issues
The answer was helpful?
How are ADRs traded?
ADRs are traded on the US market in the same way as ordinary shares are traded on the local market, the only difference being is that dividends are paid in dollars. For this purpose, a US financial institution buys a tranche of shares in Grupo de Inversiones Suramericana and arranges these in groups to be re-issued on a local US stock exchange. For this reason Grupo de Inversiones Suramericana must provide the same detailed financial information as it does to the Colombian Superintendency of Finance, to the sponsoring bank, also known as the Depository bank, in this case the Bank of New York Mellon (BONY) which is also responsible for establishing the ratio between the number of ADRs and the original shares.
The answer was helpful?
Who is the Depository Bank for Grupo de Inversiones Suramericana´s ADRs?
The Depository bank is Bank of New York Mellon (BONY) who besides being responsible in the US for the shares in Grupo de Inversiones Suramericana, as the issuer of such, is also in charge of carrying out all those required procedures before the SEC (Securities and Exchange Commission), together with promoting and registering the shares on the US market It also acts as a link between the Company and its US investors, that is to say, it receives the information about Grupo de Inversiones Suramericana, which is then disseminated throughout the US market; it pays the dividends that the Company decides to award its shareholders; it communicates with brokers to ensure the best possible negotiations, and it maintains the ADR holders informed of any event that could affect the price of these securities.
The answer was helpful?
What is the ratio existing between the ADRs and Suramericana's ordinary shares?
The price of an ADR corresponds to the price of shares on the local market, duly adjusted according to the number of shares making up an ADR and multiplied by the exchange rate, which is why the price of shares on the domestic market and on the US market are so similar, since any distortion that arises is swiftly settled and corrected by investors having access to both markets. In the case of Grupo de Inversiones Suramericana, an ADR represents 2 ordinary shares in the Company, traded under the ticker GIVSY.
The answer was helpful?
What implications or risks could the ADR registration represent?
Grupo de Inversiones Suramericana´ ADR registration could imply certain additional political and exchange risks that the Company has duly contemplated.
- The political risk has to do with fluctuations in the price of ADRs in the case of any political instability arising in Colombia.
- The exchange risk is related to fluctuations in the exchange rate between the Colombian peso and the US dollar. Any decline in the exchange rate in Colombia would mean a reduction in the ADR's dollar price.
The answer was helpful?
What is the OTC market?
OTC stands for “Over The Counter” and refers to the market in which brokers or market makers trade shares that are not listed on the US stock exchanges, such as the New York Stock Exchange - – NYSE, Amex o Nasdaq Information regarding all those transactions carried out and registered with the OTC market is published on a weekly basis in the so-called "Pink Sheets".
The answer was helpful?
What types of ADRs are there?
ADRs backed by existing shares:
- Level 1: This is the quickest and most straightforward method in which non- US companies can offer their shares on the US market. This level of ADR cannot be listed on a stock exchange but must be traded on the “Over the Counter” or OTC market. The advantage of this type of ADR is its low issuing and maintenance costs as well as minimum reporting requirements on the part of the Securities and Exchange Commission (SEC) Given the inherent advantages, the majority of ADRs belong to this level.
- Level 2: Unlike Level 1, this level of ADRs are listed on a US stock exchange. The issuer must also provide SEC with relevant information before taking on any corporate obligations with shares listed on a US-listed stock exchange. Also, the Company must draw up an annual financial report following Generally Accepted Accounting Principles in the US (US GAAP). The advantage of this level is that shares may be listed on a stock exchange.
ADRs issued on new shares:
- Level 3: Primary Public Offer. This level allows companies to issue new shares and place these in the form of ADRs amongst US investors. These are listed on the US stock exchanges. This level is governed by stricter rules and regulations similar to those followed by US companies. A Level 3 program means that the Company not only is taking some of its shares to be negotiated in the United States, but that it is issuing new shares to obtain capital. The Company must publish a public offer prospectus. It must also publish its results on a quarterly basis as well as any investor information that is required to be disclosed through the SEC.
- Rule144a: Private Primary Offer. As in the case of Level 3, this refers to an issue of new shares on the part of a Company. However, the corresponding ADRs are not listed on the US stock exchanges but are placed with institutional investors (Qualified Institutional Buyers- QIBs). This program is similar to Level 3 with regard to the type of formalities that the SEC requires that all issuers comply with. The ADRs that are issued as part of this program can only be sold to non-institutional investors two years after having been initially placed.
- Global Offer– GDR: Here the Company places its shares on the international markets, either private or public. Generally- speaking this program is structured in a similar manner to Rule 144A in the United States as well as a public offer of GDRs outside the United States, without any restrictions whatsoever.
The answer was helpful?
|
|