From the beginning, IR plays a key role in an ADR listing, ensuring the process is fully understood by both current and prospective shareholders. ‘Right from whenever the idea is born for a company to list in the US, investor relations has to be involved,’ comments Sandeep Shroff, general manager of IR at Infosys Technologies.
Once off the ground, it’s important to avoid making any drastic shifts in IR as the ADR listing gathers momentum, Shroff adds. ‘You should have anticipated what will be required long in advance so the IR function doesn’t have to make any noticeable changes,’ he notes. ‘Before, during and after the listing, you should be acting like a US public company, following all the rules.’
Another key aspect is having the right IR people in place from the beginning. To get through the ADR process without any hitches, a company needs to have an IR expert with knowledge of the US market. This person can either be in-house or work as an outside consultant but he or she should have contacts with US institutions and sell-side analysts. ‘You need an IR person who is attuned to the local market; you can’t just send an IRO from your native country who has no US experience,’ says Shroff.
This IR person must have industry knowledge and a thorough understanding of the dynamics of the US capital markets. ‘If you’re a non-US company, it can sometimes be a surprise to learn what you can and can’t do in terms of US regulations,’ explains Shroff. ‘The IRO has to completely understand the legal framework of the US, as well as appreciate that things might work in a totally different way from a company’s domestic environment.’
Building relationships
On the road to an ADR, the IRO is in charge of US investor outreach as well. ‘US investors want to have a proper understanding of management; that’s the role IR has to play,’ comments Nils Paellmann, vice president of IR at Deutsche Telekom. ‘Building relationships leads to a better chance there will be demand for your shares and greater liquidity.’
During the ADR process, it’s crucial to have a broad range of potential investor targets. ‘A company should try to meet with investors even if they’re clearly not going to buy its stock immediately,’ notes Paellmann. ‘When you’re new to a market, it’s important to develop long-term relationships and lay solid groundwork. That way, investors can make a future investment decision without having to get to know your company from the beginning.’
Monitoring the IR practices of peer companies in the US market is a good way to gauge what the US investment community is used to getting from IROs. ‘You should keep track of what competitors are doing, as this can help you modify your IR practice and present to US investors what’s relevant and topical to them,’ explains Paellmann.
Special treatment
For companies listing an ADR on the NYSE, one important aspect of the IR function is choosing a specialist firm. ‘Focus on a company that has some orientation to your market sector and home country dynamics so it understands the trading character of your stock,’ advises Charles Carter, vice president of investor relations at South African gold producer AngloGold Ashanti.
While it’s crucial to pick a specialist that understands a company’s story, sector and trading history, personality and commitment to your individual company is equally important. You don’t want to be a small-cap tech company with a specialist that holds IBM, for example. You should also look at the participation rate of the specialist firm and, in particular, the individual trader, to ensure you’re choosing an active trader for your stock. This is a key benchmark when selecting a specialist.
What you need in a specialist is someone who will be committed to your stock. One way to get an indication of this is to check references by calling the specialist’s current clients to find out how much contact they have with the trader. ‘The best relationship an IRO can have with a specialist is a two-way information street,’ says Paellmann. ‘An IRO should proactively inform the specialist if there’s something significant going on at the company, and the specialist should provide a good stream of trading updates.’
In the early days of an ADR listing you should hear from your specialist every day so you know what trading patterns are being set. Then regular weekly contact either via e-mail or by phone is a good idea. Post-ADR, a specialist will travel to meet with a company at least once a year. ‘[It’s good to establish] regular contact with the specialist to understand the character of the trade as distinct from who’s behind it,’ says Carter.
An IRO should also make the most of the IR services offered by some specialist firms, including outreach programs, targeting tools and web-based research services. ‘Specialists aren’t there only from a trading perspective, but also from an IR perspective,’ comments Marty Cohen, vice president of IR at software company SAP. ‘They can be a very helpful IR resource, especially for a foreign company coming to the US without much experience of the US markets.’
Sustaining momentum
Once all the important IR steps have been taken, it’s vital to ensure momentum doesn’t subside after the ADR listing; sustaining a high level of communication and interest must remain a priority. ‘Firms have to make a commitment to IR,’ says Cohen. ‘What’s key for an ADR program is consistent liquidity, and this is really based on a long-term IR program. Companies often start off strong with their ADRs – doing the roadshows and everything else they need to do – and then relax. But IR has to be about seeing the investors frequently enough, building relationships over a period of time, and becoming a trusted advisor to the investment community.’
One way the IR function post-ADR should subtly alter is in terms of emphasis, by elaborating on what drives the company’s growth in discussions with investors and analysts. ‘Post-listing, IR should become increasingly more qualitative in its interaction with the buy side, focusing on [developing] an ongoing dialogue on all aspects of the company,’ comments Carter.
‘There is a strong need for proactive targeting in the beginning when companies have to educate investors,’ adds Shroff. ‘But once you find a stable set of investors, the need to educate should decrease.’ He also points out, however, that while the ‘educational burden’ goes down post ADR-listing, IROs should always be out telling the company’s story to new potential investor targets. ‘You should be continually looking for new investors,’ he adds.
When competing alongside thousands of other US-listed companies for attention and investment, make the most of resources that offer assistance and make the road to ADR success easier. After all, when trying to tap into to the world’s largest capital market, there’s simply no time to waste.
