The use of American Depositary Receipts (ADRS) by South African public companies

• Jurisdiction: South Africa
• Date: 16 August 2019
• Author: Zama Chonco
• Pages: 63-92
• Published date: 16 August 2019
• Citation: (2015) 1(1) JCCL&P 63

THE USE OF AMERICAN DEPOSITARY

RECEIPTS (ADRS) BY SOUTH

AFRICAN PUBLIC COMPANIES*

ZAMA CHONCO†

Legal Counsel, Corporate and Investment Banking, Barclays Africa Group

Limited

Keywords: American Depositary Receipts (ADRs), Global

Depositary Receipts (GDRs), sponsored ADRs, unsponsored ADRs,

level I, II and III ADR programmes, Rule 144A ADR programmes.

ABSTRACT

The process of globalisation, described as ‘the growing

interdependence of countries resulting from the increasing

integration of trade, finance, people and ideas in one global

market place’,1 has been a catalyst for economic growth in many

developing countries such as China, Hong Kong and South

Africa, by encouraging international trade as well as cross-border

investment. A popular mechanism utilised to promote cross-

border investment is the direct listing of a public company’s

shares on more than one exchange.2 Cross-listing enables a South

African public company to issue the same class of its shares on the

Johannesburg Stock Exchange (hereinafter referred to as the JSE)

as well as on a foreign exchange; with the set of shares trading

on the JSE being traded in South African rand and the shares

trading on the foreign exchange being traded in the currency of

that foreign exchange.3 There are many exchanges that facilitate

* This article is based on the research report submitted in partial fulfilment of the

requirements for the degree of Master of Laws by Coursework and Research Report

at the University of the Witwatersrand, Johannesburg, under the supervision of

Professor Tshepo H Mongalo.

† LLB (UKZN), LLM (Wits).

1 Beyond Economic Growth (ch 12 Globalization and International Trade) available

at http://www.worldbank.org/depweb/beyond/beyondco/beg_12.pdf, accessed on 18

February 2014.

2 Kathleen van der Linde ‘Aspects of the cross-listing of securities’ (2009) 21 SA

Merc LJ 631.

3 Yuliya Guseva ‘Cross listings and the new world of international capital: Another

look at the efficiency and extraterritoriality of securities law’ (2013) 44 Georgetown

Journal of International Law 411.

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(2015) 1(1) JCCL&P 63

© Juta and Company (Pty) Ltd

64 (2015) 1 (1) Journal of Corporate and CommerCial law & praCtiCe

that.4 The process of trading in a company’s securities either in

the over-the-counter (OTC) market or on an exchange through an

American Depositary Receipt programme (ADR programme) has

been gaining popularity with emerging economies since the early

1990s and is generally considered the most popular type of cross-

listed security to date.5 South Africa is not an exception to this

global trend. In 1983 only three South African public companies

had instituted ADR programmes,6 whereas, as of 3December2013,

as many as 35 of the JSE ‘Top 40’ listed companies have instituted

ADR programmes,7 with 24 companies instituting their ADR

programmes in 2013 alone.8

I INTRODUCTION

Every country participating in the global economy has formulated its

own corporate and commercial legislation to regulate the corporate

governance and general conduct of companies within its jurisdiction.

Three pieces of South African legislation will be considered for

the purposes of this article, being the Companies Act 71 of 2008

(hereinafter referred to as the Companies Act); the Financial Markets

Act 19 of 2012 (hereinafter referred to as the FMA) and the JSE

Listings Requirements.

From a US perspective two principal US federal laws govern the

issuance, sale and transfer of securities within the US, namely, the

Securities Act of 1933 (hereinafter referred to as the 1933 Act) and the

Securities Exchange Act of 1934 (hereinafter referred to as the 1943

Act). The 1933 Act regulates the public offering of securities and the

1934 Act regulates the securities markets.9 A further instrument of US

legislation worthy of mention is the recently enacted Sarbanes-Oxley

Act of 2002 (hereinafter referred to as the Sarbanes-Oxley Act). The

Sarbanes-Oxley Act introduces additional internal control, disclosure

4 Available at http://www.forbes.com/pictures/eddk45iglh/bmf-bovespa-brazil/, accessed

on 25 April 2014.

5 Guseva op cit note 3 at 424.

6 Bank of New York Mellon: Depositary Receipt available at http://www.adrbnymellon.

com/dr_directory.jsp, accessed on 25 April 2014.

7 ‘Corporate news: Clover launches ADR programme in US’ available at http://

finweek.com/2013/12/03/corporate-news-clover-launches-adr-programme-in-us/,

accessed on 25 April 2014.

8 Op cit note 6.

9 Cleary Gottlieb Steen & Hamilton LLP ‘Guide to public ADR offerings in the United

States’ 1 October 2012 at 6, available at http://www.cgsh.com/files/News/54b0ff80-

eef5-4f03-bd39-6f34006411d6/Presentation/NewsAttachment/59af0cce-a2ba-4cca-

9cf5-6f90a7c5b847/Guide%20to%20Public%20ADR%20Offerings%20in%20

the%20United%20States%20(October%201,%202012).PDF, accessed on 14 April

2014.

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