Fund Manager’s View, Newsline Volume 14 Issue 2 March 2004

Congratulations IROs! The Toronto Stock Exchange has just introduced an interesting trading option that will make your job a little bit easier. And it’s being offered for free!

Monday October 4th, ACE Aviation Holdings, the company that emerged from the Air Canada reorganization, and Quebecor World Inc. will launch trading with new stock symbols. ACE Aviation will be ACE.RV. The new code suffix "RV" represents a "restricted voting issue" and Quebecor will be IQW.SV to indicate a "subordinate voting issue." These are the first in a series of rollouts between October 4 and December 13, with the stock symbols for those shares with non-conventional voting structures being re-named, bringing additional clarity to the differences between various types of securities that trade on Toronto Stock Exchange and TSX Venture Exchange.

Small-Cap Migration

As we rake leaves under a pewter sky and a nip in the air announces snow, the geese are flying south and small-caps are flying north. Battered by low valuations, thin trading and a lack of analyst coverage, many interlisted Canadian companies see the Sarbanes-Oxley Act and all its costly compliance as possibly the last straw.

The TSX recently published amendments to the TSX Company Manual provisions relating to non-exempt issuers, changes in the structure of an issuer's capital and de-listing procedures. Other issues of Blakes Bulletin on Securities Law have summarized these amendments.

The Canadian Society for Corporate Secretaries (CSCS), in collaboration with the Toronto Stock Exchange (TSX), are pleased to present a series of cross-country roundtable discussions on:

JANUARY 25, 2005 (TORONTO) -- Richard Nesbitt, Chief Executive Officer of TSX Group Inc., today announced the following appointments as part of a realignment of TSX Group’s organizational structure to consolidate responsibilities.

On January 26, 2005, Standard & Poor’s announced that it intends to include Income Trusts in the S&P/TSX Composite Index. The decision follows a study of Income Trusts by the S&P/TSX Canadian Index Committee, as well as consultation with Standard & Poor’s Canadian Index Advisory Panel and other interested groups.

MARCH 3, 2005 (TORONTO) -- TSX Group Inc., today announced that effective immediately Rik Parkhill, President, TSX Markets and Executive Vice President, TSX Group, is assuming responsibility for the day-to-day listing operations of Toronto Stock Exchange, in addition to being responsible for the trading operations of Toronto Stock Exchange and TSX Venture Exchange. Mr. Parkhill is based in Toronto and Montreal.

MARCH 23, 2005 (TORONTO) -- Companies in Nova Scotia have a new way to access venture capital and become listed on TSX Venture Exchange. The new Capital Pool Company Program was announced today by the Nova Scotia Securities Commission and TSX Venture Exchange. It becomes effective on March 24.

Richard Nesbitt cites benefits of market synergies which have resulted in cost savings for market participants

The fact that issuers listed on the TSX Venture Exchange are exempted from some of the new continuous disclosure requirements and certifications doesn't mean that their timely disclosure obligations are any less than of TSX-listed companies. Venture issuers also have some special extra disclosure obligations.

The TSX Group has announced that it is discontinuing the ‘special voting’ stock symbol extension program introduced in 2004 to indicate unique voting structures.

“Night and day.” That’s the difference Carl Hansen sees in handling IR for his $10million mining micro cap after his IRO days at billion-dollar firms such as Kinross Gold.

FEBRUARY 28, 2006 (TORONTO/MONTREAL) – Richard Nesbitt, CEO of TSX Group Inc., and Rik Parkhill, President TSX Markets, today announced a significant strengthening of the company's national operations and its Montreal presence with the hiring of Richard Nadeau as Senior Vice President, Toronto Stock Exchange.

MARCH 16, 2006 (FREDERICTON, NB) – TSX Group CEO Richard Nesbitt says the global consolidation of stock exchanges is making it more important today that Canada develop strong national rules to ensure our capital markets will be a powerful competitor in North America and around the globe.

NEW YORK, NY, June 6, 2006 – Thomson Financial, part of The Thomson Corporation (TSX: TOC, NYSE: TOC), and the Toronto Stock Exchange (TSX:X), part of TSX Group Inc., have announced a strategic alliance to deliver market data, analytics and competitive information to investor relations professionals in Canada through the launch of TSXconnect®. Also as part of this alliance, Thomson Financial becomes a content provider and sponsor of market data to the TSX Broadcast Centre, which is also a satellite location to Canada’s leading financial news outlets.

MUMBAI -- 'Alternate' directors appear to be a growing phenomenon in India's boardrooms. While other countries have them, the latest annual reports suggest they have become exceptionally common here. In fact, the Economic Times of India reports that there are now alternate directors at 65 companies on the Bombay Stock Exchange's BSE 500.

Mike Reilly looks at the ‘other’ over-the-counter market as the Pink Sheets launches a US version of Aim

There’s a new wrinkle in the fabric of the markets – one that may bring an alternative for US investors hungry to own more international shares and for foreign issuers eager to raise their profile but unwilling to take on the costs of SEC registration, exchange listing requirements and Sox compliance.

The Pink Sheets – or the Pinks, as it is known on Wall Street – dates back almost to the beginning of the 20th century. It has traditionally been seen – and still is by many today – as an outdated paper-based quotes arena for a wide array of shares – and mostly dicey penny stocks at that.

But under the stewardship of a savvy New York area native named R Cromwell Coulson, the Pink Sheets has become a robust contender for the attention of many companies, including western Europeans who have recently shied away from the US.

With a snappy internet venue for its now all-electronic quotations, the Pink Sheets has steadily added features to make the market attractive to all constituents – issuers, market-makers and, most importantly, investors. Its quotes are distributed by all the major vendors, from Reuters to Bloomberg. Now it plans an elite quotation that will require high levels of disclosure, though not as high or as extensive and expensive as those required by SEC registration.

Here comes OTCQX
The Pink Sheets’ new OTCQX is touted as being similar to London’s Alternative Investment Market (Aim) in its structure, and Coulson has created a chart on the new web site (www.otcqx.com) showing the parallels. The chart also shows how the new service will stand out from both the Pink Sheets and the OTC Bulletin Board, on which many over-the-counter stocks are posted under the aegis of NASD.

The bottom line for non-US companies is that by backing a US quote of their stock listed, say, in London or Frankfurt, a ready market is presented for US investors. Such quote generation is done by market-makers, typically broker-dealers, who simply begin to make a market in a given stock and then post their bid and ask prices. This may come from their own belief that interest is out there, or it could be generated by institutions that let the dealers know they want to see prices.

Companies like Nestlé, Roche and Heineken already trade on the Pink Sheets and enjoy US visibility without the high costs of Sox regulations or registration and listing fees. ‘Look at consumer brands with US employees, with big US customer bases,’ says Coulson. ‘If you are Volkswagen, you want people who buy your cars to be able to buy the shares easily. It increases the number of repeat customers.’

The overall move in European markets toward greater transparency and best practice in disclosure plays directly into the new OTCQX proposition. By offering a venue that guarantees only companies with strong disclosure habits and regular financial reporting that meets its listing standards, the OTCQX hopes to attract more investors and well-regarded issuers, regardless of size.

More varied IR
The new service will create three tiers of companies, with the highest level of well-qualified firms having to hit several marks in addition to regular financial reporting and good disclosure. Added criteria include management certifications, quarterly reporting and the appointment of a ‘designated advisor’ – a kind of monitor to ensure compliance.

Since there is no exchange listing and the requirements of SEC filings are limited to matching those of companies’ home countries, there can often be a certain relaxation of IR among Pink Sheets stocks. There is no retail component to IR for Roche, for example, since its shares are mostly owned by institutions and it does not seek retail investors in the US. Then there are the special situations, which abound on the Pinks. Owens Corning, driven to bankruptcy by asbestos lawsuits, moved over to the Pink Sheets while working itself out of its problems.

Sox pushed some US companies onto the Pinks along with foreign ones. Moving off the American Exchange shortly after Sox came over the horizon was a strategic choice for the Ziegler Companies, a Midwestern financial services firm with billions of dollars in business and billions more under management for clients.

‘I immediately perceived Sox as highly problematic from an expense and management point of view,’ says Ziegler CEO John Mulherin. ‘Requirements for new board committees, Section 404 compliance, extra auditing – all these combined to create a task we could not afford. We decided to de-list and deregister.’

But unlike Owens Corning and others who almost seem to be hiding on the Pinks, Ziegler cares a lot about its shareholders and their perception. ‘We made a lot of calls, wrote letters and had conversations with shareholders, clients, employees and other constituents. We spent a great deal of time explaining to people how to use the Pink Sheets,’ Mulherin recalls. ‘It was important we be very clear about our views on corporate governance and transparency.’

Did the move to the Pinks pay off? ‘The effort was endorsed by shareholders, who saw that we were saving capital and guarding profits. The stock price appreciated by 10 percent,’ the Ziegler CEO states.

Foreign companies unwilling to take the expensive and rules-strewn path of a full exchange listing may be encouraged by the new ‘premium’ OTCQX. After all, Federal Reserve figures show non-US stocks represented just shy of 16 percent of US portfolios at the end of 2005 – a record level, but one that leaves a lot of room for growth.

by Mike Reilly
Thanks to IR Magazine for allowing us to bring this article to you.

“The Halloween massacre” is how Anne-Marie Buchmuller describes the day Finance Minister Jim Flaherty changed the tax rules governing income trusts. The head of IR for Calgary-based Sound Energy Trust had only been on the job for two weeks when the Minister dropped his tax bombshell and sent the market into a tailspin. The surprise announcement translated into a $20 billion drop in the S&P/TSX composite index on November 1 with sharp losses for the trust sector, which has yet to recover.

“We have had many calls from investors, mostly retail, who are very upset – they lost a lot of money,” reports Buchmuller. “Shock and outrage is the best to describe how our investor base has reacted,” adds David Carey, Senior Vice President, Capital Markets for ARC Energy Trust. “We lost 25% overnight and are still down 20% a month later. A lot of people were caught unaware; our phone lines lit up and email system overflowed with questions from unitholders.”

Vanessa Theiss investigates Switzerland’s banking capital

Switzerland is renowned for its authoritative asset management industry, with Zürich acting as its banking capital. It is here that more than a third of Swiss banks have their headquarters and one of Europe’s largest stock exchanges, the SWX Swiss Exchange, resides. All of this makes Zürich a major investment center and a hive of financial opportunity.

In terms of total equity under management, Zürich’s buy side is responsible for some $200 bn in equity assets, according to data from CapitalBridge. There are about 350 buy-side firms in Switzerland, 112 of them in Zürich. IROs planning a European roadshow often find the Swiss asset management industry both impressive and attractive.

‘Asset management is an area in which Switzerland has been traditionally strong,’ explains Wolfgang Weber-Thedy, founder and senior partner at Weber-Thedy, a corporate and financial communications consultancy in Zürich. ‘Switzerland is the world leader in private banking: approximately one third of the world’s private wealth held outside the owners’ countries of residence is managed here. Assets managed in Switzerland in the form of customer deposits amount to approximately Sfr2.9 tn ($2.28 tn), or more than six times Swiss GDP in 2002. Switzerland also plays a significant role in terms of capital market transactions. The Swiss stock exchange ranks in the world’s top ten in terms of market capitalization, and the country has the highest market capitalization per capita.’

Another alluring factor is that portfolio managers here are quite keen to invest internationally: Zürich’s financial center manages about $27.5 bn in US securities alone, across 1,600 different US firms. ‘The US is by far number one when it comes to non-domestic equities managed out of Zürich,’ says Cary Krosinsky, director of ownership data at CapitalBridge. ‘Europe as a whole accounts for 46.5 percent of non-domestic equity managed, North America about 36.7 percent.’

Long-term players
There is a wide range of investment styles in Zürich, though a couple of categories dominate. ‘Investing styles in Zürich vary greatly, but the majority of institutions fall into the growth or value investor categories. Investors in Zürich also tend to have long-term investment horizons,’ comments Sébastien Martel, vice president of IR at Serono International, a Geneva-based biotechnology company.

Eva Kalias, a partner at Weber-Thedy, agrees local portfolio managers tend to be long-term buyers, but adds that many have their own specific stock-picking method. ‘On the positive side, investors here usually don’t get so nervous about short-term quarterly figures,’ she says. ‘They take industry analysts’ figures as benchmarks and several investors develop their own specific criteria they use to choose investments.’

It is recommended that IROs investigate institutions’ distinct investing cultures to properly target the Zürich asset managers most interested in their company’s story. This helps maximize senior management’s time while in Zürich and distinguishes which investors warrant a one-on-one meeting from those that should be invited to a group gathering.

‘Our investment philosophy can be described as active and risk-controlled,’ explains René Schneider, head of investment management equities at Bank Julius Bär, one of Zürich’s top asset management houses. ‘We are not in a particular camp of growth or value investing. We prefer to be in style rotation, which means we like to invest in value when value is outperforming and we like to be in growth when growth is outperforming. To determine this we use proprietary research for good indications of when value or growth is cheap.

‘There is sufficient empirical evidence to support such an approach and our observation is that the market rewards the exploitation of such pricing anomalies quite consistently. This means we can benefit from price differences of value versus growth and large caps versus small caps, including positive price momentum.’

There are, however, some sector preferences in Zürich. For instance, life science firms are of great interest to investors, as most locals are familiar with this industry. ‘Switzerland is an absolute must-visit destination for life science companies, due to the country’s own strength in the pharma and biotech industry,’ comments Weber-Thedy. ‘There is a big workforce in this industry in Switzerland, so people know what’s going on in the market and at the same time they are investors. About 35 percent of companies listed on the SWX Swiss Exchange are life science firms.’

The same is true of financial services firms. ‘Banking and insurance companies coming here will have no problem – almost 200,000 of the 3.8 mn people in the workforce work in banking and insurance in Switzerland,’ Weber-Thedy notes.

Michael Düringer, partner at the Investor Relations Firm in Zürich, agrees. ‘It is helpful if your company is within the peer group of a Swiss company,’ he adds. ‘Investors here make the connection and will be more likely to take an interest. Medical technology and the financial sectors are popular here.’

Telling the story
Investors in Zürich tend to be very polite and willing to listen to a company’s presentation in full. It is customary for meetings to run for an hour, with up to 30 minutes dedicated to presenting and the rest to Q&A.

Asset managers’ knowledge of your company will vary, however. One should distinguish between the major asset management houses’ portfolio managers and those in the smaller institutions. For instance, portfolio managers at large institutions are normally well versed about companies they meet with and will probably want to spend little time listening to presentations. But smaller institutional investors, which often don’t have in-house analysts to rely on and tend to take a generalist approach to covering companies, appreciate formal presentations.

‘Normally the number of questions investors ask is fairly limited so if you have to make a formal presentation, allocate a significant amount of time to it, and don’t leave too much time for questions, unless you have an unusual story like an M&A, or the fund manager is very familiar with your company,’ recommends Bernhard Fuchs, head of investor relations at Holcim, a Zürich-based cement maker. ‘The best thing to do is to ask investors when scheduling meetings which format they prefer.’

‘Schneider says when he interviews senior management, learning about its business strategy is a priority. ‘I want to understand the business model and assess whether the management can successfully execute its strategy,’ he explains. ‘We also like to learn more about its competitors, which is something you don’t read in the annual report. The CEO is working in the industry and should have clear ideas about the best the industry has to offer. Therefore, a lot of questions would address the downside: what happens if..?’

‘Getting around
Zürich is very easy to get around, as it is a small city. Taking public transportation to travel from one meeting to the next is acceptable. But hiring a car service may be the safest bet, as institutions are located throughout the city.

‘Zürich is a fairly easy city to target in a day. ‘A full day of one-on-ones with a lunch presentation is the most appropriate format,’ comments Martel. ‘You can do six or seven one-on-ones in a day. And companies should not forget that Switzerland has another financial center: Geneva. It’s worth planning half a day there to visit three institutional investors that are within the European top 100 – Lombard Odier Darier Hentsch (LODH), Pictet and Union Bancaire Privée (UBP).’

‘It’s appropriate for IROs to meet with institutions alone here. ‘I would split traveling to Zürich between IR and senior management, and would not expect management to be here more than twice a year,’ says Fuchs. ‘It’s fine for IROs to do follow-up meetings to update investors.’

‘If this is a company’s first time targeting Zürich’s investment community, Fuchs recommends that IR professionals visit the city before senior management to uncover local investors’ understanding and interest in their firm.

‘Lastly, asset managers here appreciate straightforwardness and knowledge of cultural customs. ‘Flamboyant entrances may impress, but won’t convince,’ explains Weber-Thedy. ‘Don’t misinterpret local customs. Pleasant, civil behavior is not necessarily a sign of approval from the local buy side, just as silence can’t be taken as lack of interest. Have discussions and ask questions to find out what investors are thinking. Few European institutional investors are as direct as the average US buy-side analyst.’

‘by Vanessa Theiss

Thanks to IR Magazine for allowing us to bring this article to you.

Vanessa Theiss investigates Switzerland’s banking capital

Switzerland is renowned for its authoritative asset management industry, with Zürich acting as its banking capital. It is here that more than a third of Swiss banks have their headquarters and one of Europe’s largest stock exchanges, the SWX Swiss Exchange, resides. All of this makes Zürich a major investment center and a hive of financial opportunity.

In terms of total equity under management, Zürich’s buy side is responsible for some $200 bn in equity assets, according to data from CapitalBridge. There are about 350 buy-side firms in Switzerland, 112 of them in Zürich. IROs planning a European roadshow often find the Swiss asset management industry both impressive and attractive.

‘Asset management is an area in which Switzerland has been traditionally strong,’ explains Wolfgang Weber-Thedy, founder and senior partner at Weber-Thedy, a corporate and financial communications consultancy in Zürich. ‘Switzerland is the world leader in private banking: approximately one third of the world’s private wealth held outside the owners’ countries of residence is managed here. Assets managed in Switzerland in the form of customer deposits amount to approximately Sfr2.9 tn ($2.28 tn), or more than six times Swiss GDP in 2002. Switzerland also plays a significant role in terms of capital market transactions. The Swiss stock exchange ranks in the world’s top ten in terms of market capitalization, and the country has the highest market capitalization per capita.’

Another alluring factor is that portfolio managers here are quite keen to invest internationally: Zürich’s financial center manages about $27.5 bn in US securities alone, across 1,600 different US firms. ‘The US is by far number one when it comes to non-domestic equities managed out of Zürich,’ says Cary Krosinsky, director of ownership data at CapitalBridge. ‘Europe as a whole accounts for 46.5 percent of non-domestic equity managed, North America about 36.7 percent.’

Long-term players
There is a wide range of investment styles in Zürich, though a couple of categories dominate. ‘Investing styles in Zürich vary greatly, but the majority of institutions fall into the growth or value investor categories. Investors in Zürich also tend to have long-term investment horizons,’ comments Sébastien Martel, vice president of IR at Serono International, a Geneva-based biotechnology company.

Eva Kalias, a partner at Weber-Thedy, agrees local portfolio managers tend to be long-term buyers, but adds that many have their own specific stock-picking method. ‘On the positive side, investors here usually don’t get so nervous about short-term quarterly figures,’ she says. ‘They take industry analysts’ figures as benchmarks and several investors develop their own specific criteria they use to choose investments.’

It is recommended that IROs investigate institutions’ distinct investing cultures to properly target the Zürich asset managers most interested in their company’s story. This helps maximize senior management’s time while in Zürich and distinguishes which investors warrant a one-on-one meeting from those that should be invited to a group gathering.

‘Our investment philosophy can be described as active and risk-controlled,’ explains René Schneider, head of investment management equities at Bank Julius Bär, one of Zürich’s top asset management houses. ‘We are not in a particular camp of growth or value investing. We prefer to be in style rotation, which means we like to invest in value when value is outperforming and we like to be in growth when growth is outperforming. To determine this we use proprietary research for good indications of when value or growth is cheap.

‘There is sufficient empirical evidence to support such an approach and our observation is that the market rewards the exploitation of such pricing anomalies quite consistently. This means we can benefit from price differences of value versus growth and large caps versus small caps, including positive price momentum.’

There are, however, some sector preferences in Zürich. For instance, life science firms are of great interest to investors, as most locals are familiar with this industry. ‘Switzerland is an absolute must-visit destination for life science companies, due to the country’s own strength in the pharma and biotech industry,’ comments Weber-Thedy. ‘There is a big workforce in this industry in Switzerland, so people know what’s going on in the market and at the same time they are investors. About 35 percent of companies listed on the SWX Swiss Exchange are life science firms.’

The same is true of financial services firms. ‘Banking and insurance companies coming here will have no problem – almost 200,000 of the 3.8 mn people in the workforce work in banking and insurance in Switzerland,’ Weber-Thedy notes.

Michael Düringer, partner at the Investor Relations Firm in Zürich, agrees. ‘It is helpful if your company is within the peer group of a Swiss company,’ he adds. ‘Investors here make the connection and will be more likely to take an interest. Medical technology and the financial sectors are popular here.’

Telling the story
Investors in Zürich tend to be very polite and willing to listen to a company’s presentation in full. It is customary for meetings to run for an hour, with up to 30 minutes dedicated to presenting and the rest to Q&A.

Asset managers’ knowledge of your company will vary, however. One should distinguish between the major asset management houses’ portfolio managers and those in the smaller institutions. For instance, portfolio managers at large institutions are normally well versed about companies they meet with and will probably want to spend little time listening to presentations. But smaller institutional investors, which often don’t have in-house analysts to rely on and tend to take a generalist approach to covering companies, appreciate formal presentations.

‘Normally the number of questions investors ask is fairly limited so if you have to make a formal presentation, allocate a significant amount of time to it, and don’t leave too much time for questions, unless you have an unusual story like an M&A, or the fund manager is very familiar with your company,’ recommends Bernhard Fuchs, head of investor relations at Holcim, a Zürich-based cement maker. ‘The best thing to do is to ask investors when scheduling meetings which format they prefer.’

‘Schneider says when he interviews senior management, learning about its business strategy is a priority. ‘I want to understand the business model and assess whether the management can successfully execute its strategy,’ he explains. ‘We also like to learn more about its competitors, which is something you don’t read in the annual report. The CEO is working in the industry and should have clear ideas about the best the industry has to offer. Therefore, a lot of questions would address the downside: what happens if..?’

‘Getting around
Zürich is very easy to get around, as it is a small city. Taking public transportation to travel from one meeting to the next is acceptable. But hiring a car service may be the safest bet, as institutions are located throughout the city.

‘Zürich is a fairly easy city to target in a day. ‘A full day of one-on-ones with a lunch presentation is the most appropriate format,’ comments Martel. ‘You can do six or seven one-on-ones in a day. And companies should not forget that Switzerland has another financial center: Geneva. It’s worth planning half a day there to visit three institutional investors that are within the European top 100 – Lombard Odier Darier Hentsch (LODH), Pictet and Union Bancaire Privée (UBP).’

‘It’s appropriate for IROs to meet with institutions alone here. ‘I would split traveling to Zürich between IR and senior management, and would not expect management to be here more than twice a year,’ says Fuchs. ‘It’s fine for IROs to do follow-up meetings to update investors.’

‘If this is a company’s first time targeting Zürich’s investment community, Fuchs recommends that IR professionals visit the city before senior management to uncover local investors’ understanding and interest in their firm.

‘Lastly, asset managers here appreciate straightforwardness and knowledge of cultural customs. ‘Flamboyant entrances may impress, but won’t convince,’ explains Weber-Thedy. ‘Don’t misinterpret local customs. Pleasant, civil behavior is not necessarily a sign of approval from the local buy side, just as silence can’t be taken as lack of interest. Have discussions and ask questions to find out what investors are thinking. Few European institutional investors are as direct as the average US buy-side analyst.’

‘by Vanessa Theiss

Thanks to IR Magazine for allowing us to bring this article to you.

Asian ADR issuers aren’t afraid of Sox, reports Neil Stewart

Sarbanes-Oxley may be a cloud hanging over a lot of foreign issuers on US exchanges, but Asia seems hardly to have noticed. Sox certainly didn’t deter the ten Chinese tech stocks that listed American depositary receipts (ADRs) on Nasdaq in the year to September, or the dozen or so still in the pipeline. Section 404 didn’t scare off one of the largest ever venture cap-backed IPOs, Shanghai chip maker SMIC, which last year dual-listed in Hong Kong and on the NYSE, raising $1.8 bn and surpassing even Google. Nor did the type of shareholder litigation faced by China Life and China Mobile stop China’s own version of Google, Baidu, from climbing more than 350 percent on its first day of Nasdaq trading in August.

And no amount of SEC fine print could slow Taiwan’s Chunghwa Telecom, which in August raised $2.56 bn in a secondary offering on the NYSE – the largest ever ADR capital raising from Asia and the second largest from anywhere.

‘Sox actually helped us,’ says Fufu Shen, head of IR at Chunghwa Telecom. ‘We were preparing for years before we listed on the NYSE, so the new requirements developed gradually. I know there are lots of Sox constraints, but the review we conducted gives investors more confidence.’

Christopher Sturdy, managing director and head of the Bank of New York’s depositary receipt division, says US investor interest in Asian stocks has been growing for years, with a substantial inflow of capital continuing through 2005.

‘One reason Asian issuers can’t ignore US investors is that US investors are actively looking for Asian issuers,’ he explains. In part this trend is a result of the quest for growth. ‘US investors may feel they’re overweight in slower-growth European companies and want to get into higher-growth companies in Asia,’ Sturdy continues. ‘Sometimes we can actually see the movement – a fund gets out of a European ADR and the money goes straight into an Asian one.’

Why ADRs?
Some pundits – among them IR magazine – have long sounded the death knell for ADRs as domestic markets have opened up to US investors. The Hong Kong market, for example, is easy and cheap to access, while a growing number of qualified foreign institutional investors (QFIIs) can access China’s A-share market. So why don’t Asian issuers sit tight and let US investors come to them?

Regional domestic markets have also seen large offerings in 2005, and they will continue to do so. ‘But that doesn’t mean issuers will ignore overseas pools of capital,’ notes David Russell, Asia-Pacific director at Citibank Depositary Receipt Services. ‘A Taiwan tech company may be able to raise all its capital locally, but if it has customers, suppliers and employees in the US, why not raise money there?’

Besides, not all US investors are able or willing to trade on Asian exchanges. ‘There are literally hundreds of sector-style fund managers that do not have QFII status,’ says Kenneth Tse, head of Asia-Pacific ADRs at JPMorgan Chase. ‘Even within large global fund families, there are individual funds that are not allowed by their charters to buy non-US listed shares, and buying ADRs is the most economical route for them to get international equities exposure. Even for foreign investors that can buy Asian shares in the local markets without foreign ownership restrictions, many still prefer to trade on the US stock exchanges and in their own time zone.’

Consider two key types of investor that rely on ADRs, and not just the classic example of US pension funds, which can hold only US-listed securities. Separately managed accounts (also known as ‘wrap’ accounts) and hedge funds have been growing in leaps and bounds, and in both cases fund managers prefer US-listed securities over domestically listed ordinary shares. ‘They have to use DRs to be cost-effective,’ Sturdy points out. Rush to Nasdaq Certainly, new NYSE-listed ADRs have been thin on the ground over the last year, continuing a slowdown triggered by delayed though still looming Sox deadlines, but Nasdaq listings have been coming thick and fast. And secondary capital raising has been healthy: Asia-Pacific, excluding Japan, raised $10.8 bn in DR form up to September, compared with $6.7 bn in the whole of 2004, according to Citibank.

Chris Kearns, the Bank of New York’s regional director for North Asia DRs, explains the healthy flow of Asian tech companies. ‘Many of the new listings over the past 18 months have been relatively small entrepreneurial tech companies funded by predominantly US venture-cap firms, and part of the exit strategy is a Nasdaq listing,’ he says. ‘After all, US investors still value tech companies more highly than their counterparts around the world, and the venture-cap firms want the quickest, cleanest way out.’

‘We gave serious consideration to all our options, including a dual listing,’ says Donglei Zhou, director of IR at Shanghai-based online gaming company Shanda Interactive Entertainment, which was one of the two best performing US IPOs in 2004 (the other was China’s 51job). ‘Most of our peers in the Chinese internet space were trading on Nasdaq at the time, and US investors are just more familiar with the concept. In fact they’re more appreciative of technology companies overall, whereas in Asia investors still tend to give tech companies a lower valuation compared with the traditional sector companies that dominate the Hong Kong market.’

For Shanghai’s Focus Media Holding, which raised $172 mn on Nasdaq in July, an ADR does more than just attract investors: it also attracts advertisers to its network of TV screens in offices and other commercial sites across China.

‘One reason we listed on Nasdaq was to raise our international profile and support our business,’ says Jie Chen, investor relations manager at Focus. ‘Companies are somehow suffering from credibility problems in China, but our successful US listing shows that our financials are audited and we have strong corporate governance. That will also help attract more international advertisers to our network.’

Larger Asian companies, swelled by continuing economic growth, also need to be compared with their counterparts traded in the US. ‘These companies are leaders globally, not just in Asia,’ says Tse. ‘It makes sense for these stocks to trade alongside their peers on the US stock exchanges.’

There are other good reasons why issuers from some Asian countries will continue to use DRs. ‘Underwriting rules in some domestic markets are still tipped against mega-offerings,’ explains Russell. ‘Hong Kong, for example, has reasonably standard international underwriting rules but in Korea, Taiwan and India, local underwriting rules can restrict the allocation of stock to foreign institutional investors. DRs can help issuers from these countries target institutional investors with large chunks of stock.’

Sox challenge
Still, Sox has been an obstacle if not a roadblock. The US-listed DR market saw only eight new programs in the first half of 2005 compared with 22 new global depositary receipts (GDRs) listed on the London and Luxembourg exchanges. ‘It’s one of our busiest years ever for GDRs,’ Russell says. ‘But without a doubt, big-ticket US-listed ADRs have had a number of setbacks, largely due to Sox. The China pipeline has been particularly affected.’

Russell admits to hearing some concerns about the costs involved in complying with Sox, but he hasn’t heard of any major problems among existing issuers. ‘Remember, many Asian DR issuers were recently privatized, and there is no more traumatic event in the life of a company,’ he says. ‘It’s the same for firms from other emerging markets: having just started complying with US Gaap fairly recently, they’re saying, OK, we’ll comply with Sox, too. European firms seem focused on Sox, but for Asian companies it’s not a big concern.’

While complaints about Sox from European ADR issuers have been rife, Asian companies, like their Latin American counterparts, have been stoically accepting. ‘There has been much greater acquiescence in Asia than in Europe or the US,’ Sturdy says. ‘Clearly some companies want to avoid US regulations and costs. But others want to demonstrate they can keep up with the highest and most rigorous standards.’

He also expects Sox difficulties to diminish, partly through experience and, perhaps more significantly, because of better Public Company Accounting Oversight Board (PCAOB) guidance for auditing firms, released in May 2005. The second round of Section 404 compliance could cost 40 percent less for some US companies, for example, according to a March 2005 survey by Financial Executives International (FEI).

‘We were aware of Sox and the possible costs when we went for our US listing,’ Chen says. ‘We have built an internal auditing team and appropriate corporate governance system to comply with SEC regulations.’

For that matter, Sox-like regulations – particularly the EU directives – are spreading round the world. ‘GDR issuers will have to meet additional requirements to maintain a listing on an EU stock exchange,’ Tse says. ‘Meanwhile, the adoption of international financial reporting standards (IFRS) by an increasing number of countries means reconciliation to US Gaap should, over time, become less onerous. That’s a positive factor for the ADR market.’

‘Other regulators are raising the bar,’ agrees Sturdy. ‘New ADRs will pick up.’ He predicts that China and India will continue to contribute new ADRs and Korean issuance will pick up as its economy recovers. Japan, he says, is a hotbed of possibilities. Japanese companies have seen US investment growing ‘exponentially’ and they recognize the need for more presence in the US. Kearns adds that the pipeline of new NYSE-listed ADRs from Asia, largely dry for the past year, will resume with programs for Chinese companies in more traditional sectors such as retail, oil and gas, industrials and banking.

As Russell says, don’t write off ADRs yet. Or as Shen puts it: ‘An ADR is something that most global companies aim for. Quite simply, it’s an honor to be listed in the US.’

By Neil Stewart

Thanks to IR Magazine for allowing us to bring this article to you.

Jeff Cossette studies the debate over ticker extensions and dual-class shares in Canada

It has been more than a year since the Toronto Stock Exchange (TSX), prodded by the Canadian Coalition for Good Governance (CCGG), ordered issuers to affix new extensions to their stock symbols. And it has been just over a month since the TSX put the kibosh on the whole program. With some 20 percent of TSX and S&P Composite Index companies maintaining some form of subordinated voting structure, the idea was to inform investors of their voting rights, thus increasing transparency and market efficiency. But in response to complaints from the CCGG and many other ‘vocal opponents’ among the buy side, sell side, traders and issuers, the TSX is discontinuing the program.

The exchange stopped giving special extensions to new listings and said existing issuers would lose theirs during a three-month process starting in May 2006. When that process is complete, the TSX will make available ‘comprehensive details’ on share structures on its web site.

‘One thing we accomplished with the initiative was to bring about a greater understanding of the different types of voting shares some issuers have,’ says Steve Kee, a TSX spokesman. ‘Companies should be encouraged to continue to discuss and talk about their share structures so shareholders are aware of what they’re investing in.’

Having put forward the concept of the symbol extension in October 2003, the CCGG remains a strong supporter of labeling dual-class shares. But David Beatty, CCGG managing director, believes the modified system did not achieve its desired goal of clarifying the identification of subordinated voting structures, pointing out that ‘the large number of extensions along with the inconsistent application of the extension rules have made the [initiative] more cumbersome than we believe was originally intended.’

The five new suffixes were MV for multiple voting, NV for non-voting, RV for restricted voting, LV for limited voting and SV for subordinated voting. The symbol for Quebecor World, for example, became IQW.SV to denote a subordinated voting issue. Sometimes the old A or B extensions, if used at all, were dropped and replaced by their voting designations. In other cases, the new voting designations were added to A or B extensions. Thus film company M8 Entertainment’s class A multiple voting shares switched from MEE.A to MEE.MV.A, but Telus’ class A non-voting shares simply changed from T.A to T.NV.

Traders loathed the extra letters, saying they caused computer problems and order entry keystroke errors. A report by TD Securities concludes: ‘The prevailing industry view we hear is that education on voting rights needs to be more grassroots, and that the point of execution, when an investor looks up a symbol to invest, is simply too late in the process to make a difference.’

As for issuers, despite initial confusion about the symbol change, most seemed to adapt without difficulty. ‘It took a little communication at the outset – particularly with retail investors,’ says Jane Watson, former vice president of IR at IT provider CGI Group. ‘Other than that, our life is unchanged.’

‘People on either side didn’t operate any differently from how they did before the change,’ adds Bob Tait, president and CEO of the Canadian Investor Relations Institute. ‘Those who have to answer questions about their classes of shares still have to answer the same questions. If anybody was making a different investment decision based on the new symbols, we did not hear about it.’

What was the point?
Of course, making investment decisions was what the new symbol extensions were supposed to be all about. So what was the point? Some market participants say there is no direct relationship between good corporate governance and dual-class shares. ‘Inferring that two classes of shares means poor corporate governance is an over-simplification resulting from a lack of analysis,’ comments Réjean Bourque, vice president of IR at Bombardier, who notes that both Enron and WorldCom were single class.

‘You can have a company that has good corporate governance practices as well as dual-class shares,’ agrees Beatty. ‘The two are not mutually exclusive. People will continue to invest in well-run dual-class companies. Subordinated voting structures pose a greater risk for investors because when a problem arises there are exceptionally limited options. And if a company doesn’t want to change its share structure, [the CCGG] can’t force it. What we can do is ensure firms with voting risks are labeled.’ He would like to see a single mark – such as ‘X’ – denoting all kinds of subordinated voting structures.

Labeled or not, dual-class shares are a fact of life in the Canadian market, and include such big names as Magna International, Molson and Rogers Communications. Controlling shareholders argue that such structures let them build long-term value while insulating them from short-term financial expectations and corporate raiders. They also point out that, in many cases, dual-class companies have performed perfectly well.

On the other hand, institutional investors say dual-class companies are too pervasive for them to ‘vote with their feet’ to avoid them. They say such structures are inherently unfair, raise the risk of poor performance, entrench management and allow managers to appropriate benefits due to shareholders. The poster boys here are Hollinger’s Conrad Black for allegedly looting his company and Magna International’s Frank Stronach for paying himself a huge salary.

For now, all shareholders can do is sell their shares, ask owners for change or hope the TSX and regulators amend the rulebook. Last August three money managers who owned 39 percent of the non-voting shares and 29 percent of the equity of executive search firm Caldwell Partners wrote to its founder and CEO asking for change. Doug Caldwell turned down their request.

‘It’s frustrating,’ admits Colin Stewart, a partner at JC Clark, one of the dissident investors. ‘But it’s a positive step whenever these issues are brought into the public light. It’s a slow process but as awareness grows it eventually has to bring change.’

Brian Barsness, vice president of fund manager Meritas Financial, says more and more companies can expect to face shareholder resolutions calling for the elimination of special voting shares. In 2004 Meritas voted against directors at Magna International to protest against the company’s dual-class shares. ‘Pressure is growing on dual-class companies and fewer of these structures will come to market,’ predicts Barsness, pointing out that the recent lifting of foreign content caps in retirement portfolios will increase the heat in boardrooms. ‘If we are looking for just industry representation, we can find another auto parts maker outside Canada.’ Interestingly, that is, in fact, exactly what Meritas decided to do.

by Jeff Cossette

Thanks to IR Magazine for allowing us to bring this article to you.

The beautiful people are making their presence felt in the world of share trading. Daniel Gross gets star-struck

In this celebrity-soaked culture, an endorsement by a movie star or professional athlete can help bring a product free publicity, boost its market share, and endow it with a little caché. After all, marketers and product strategists find that many people take cues from celebrities on the proper choice of shoes and soda, hotels and batteries, cars and underwear. Whether it’s Bill Cosby pitching Jell-O or Jerry Seinfeld singing the praises of the American Express card, it seems to work.

But is it a sound strategy for investor relations professionals to cultivate celebrity endorsements? After all, selling stocks is famously a retail business. And in a world where investors have a seemingly endless array of stocks, bonds, mutual funds and exchange-traded funds to choose from, it seems that a celebrity’s backing could help provide an edge.

Indeed, there is a small and growing culture of celebrity stock-picking, although it involves mostly minor celebrities. Wayne Rogers, who played Trapper John on the popular 1970s-era sitcom M*A*S*H, has been appearing on Fox News Channel’s Cashin’ In. Mind you, Rogers is a Princeton University graduate with his own financial advisory firm. Last September, Lenny Dykstra, the former star baseball player for the New York Mets and Philadelphia Phillies, began writing a column for theStreet.com, an online news site.

Meanwhile, Playboy and Tradingmarkets.com are running a year-long stock-picking contest in which models assemble model portfolios. Whoever is up the most at the end of the year will receive $50,000 to donate to the charity of her choice. Through early March, Amy Sue Cooper (‘cybergirl of the year’) was up an impressive 21.84 percent and Deanna Brooks (‘Miss May 1998’) was up 10.25 percent – their portfolios were healthily beating the broad stock market indices. While these celebrity stock pickers generally stick to large-cap names like Microsoft or Amgen, it’s a sure bet Amy Sue Cooper has introduced some of her fans to lesser-known choices like Pacific Ethanol, an alternative energy firm that she picked because she’s a self-described ‘tree hugger’.

On the other hand, celebrity – not to mention celebrities themselves – can be fickle. So the tactic of trying to build a base of long-term shareholders by having big names endorse stocks doesn’t always work. Take the case of Howard Stern, the shock jock with a huge following. In January, he made a long-planned jump from Viacom to Sirius Satellite Radio, which offered him a $500 mn compensation package and several million shares. In the run-up to the changeover, the self-promoting Stern promoted Sirius the company – and, indirectly, Sirius the stock. And it performed quite well. But once Stern set up shop at Sirius in January, the promotion ceased – and Sirius’ stock has since lost more than 20 percent.

Of course, for any well-known individual to serve on the board of directors of a publicly held company is another form of endorsement. And here, too, the record of celebrities is less than stellar. Tour de France Champion Lance Armstrong is on the board of directors of Morgans Hotel Group, whose tragically hip portfolio includes London’s St Martins Lane. The company went public in February, and is down about 9.5 percent. Sidney Poitier served on the board of Disney during a period in which the media giant’s stock underperformed.

And there are plainly times when having the fate of your stock intertwined with the fate of a celebrity can bring more trouble than it’s worth. Infinity Broadcasting, the radio company that first brought Howard Stern to prominence, faced a dicey situation when its celebrity board member, former football great OJ Simpson, was arrested and charged with the murder of his wife in 1994.

Daniel Gross writes the ‘Moneybox’ column for Slate.

Thanks to IR Magazine for allowing us to bring this article to you.

Determining when merger negotiations need to be disclosed to the public can be challenging. Disclose too soon and your stock may be in for a roller coaster ride – a premature announcement can scuttle the deal if the news drives the stock too high, while news of negotiations that are subsequently abandoned can send your stock tumbling. If you wait too long and get it wrong, you may find yourself accused of failing to meet securities laws requiring timely disclosure of material changes. Investor relations professionals can now look to the recently released decision of the Ontario Securities Commission (OSC) In the Matter of AiT Advanced Information Technologies Corporation, Bernard Jude Ashe and Deborah Weinstein for guidance.

Securities legal counsel advise, generally, that merger negotiations need not be disclosed until a definitive agreement is reached. The OSC’s decision, in essence, supports this position and provides some useful guidance as to when merger negotiations must be disclosed as a “material change” under the Ontario Securities Act.