First of all I have no news on the listing, this is an hypothetical example to clarify my understanding of the listing
Listing ratio
1 ADR on NYSE - 20 shares on ASX
For listing purposes they use reference price per share on ASX - $0.75 (might take 30 day VWAP)
Assumptions
1 USD = 1.36 AUD
Listing price on NYSE
20 shares * $0.75 = $15 aud or $11.06 USD per ADR
I have heard that people don't like new foreign companies listing to be penny stocks and usually list in the $10 -20 range for level 3 ADR. This might be good if there is demand after first few days, the ASX price might shoot up as percentage movements there will be in dollars and not cents . The high exchange rate will also work in our favour
However, immediately upon listing our equivalent price will be
11.06 * 1.36 /20 = 0.75 cents per share regardless of what the price maybe on the ASX
So as Nic mentioned in the short term there maybe so volatility and when the buy starts in the U.S. we will shoot up on the ASX
How will pricing work when there is diff in price
Case 1: ADR trading higher than equivalent ASX stock
Let's say after a few weeks after settling down, 1 ADR on NYSE trading at $20 USD
In theory, equivalent ASX price
= 20 USD * 1.36[ assume same exchange rate )
= $34 AUD/ 20 shares
=
$1.07 AUD per share
However, say if the ASX price is actually 0.85 cents
Then the custodian bank will buy shares on ASX and issue more ADR's on NYSE
This will prop up the price back closer to $1.07
Case 2: ASX share price is higher than ADR
In this case, the opposite will happen. The custodian will flood ASX with shares and cancel ADR's on the ASX to prop the price there
So this raises a few questions and maybe people who have held such stocks like Resmed or have experience can correct my understanding above and answers questions/ observations below :
Question 1: if the IPO issue is bought in by large institutional investors then 2 things can happen besides a huge price rise upon listing.
A) if one of them dumps a large holding in the future, then this will have an impact on our price on the ASX in the SHORT term till its soaked up but the impact on our price may be delayed and might cause investors to panic as the price might drop but there are no signs of bad news or anything ... So we need to be mindful of that
B) if they all hold the shares tight then the price won't move much
Eg : Yellow brick road - Macquarie and Mark Bouris own 60-80% of the company so the retail shareholder buying and selling doesn't cause any effect on the price. The price hardly moves thus less volatility
Question 2: We need to find out what the institutional/retail share holding in U.S. is going to be
Question 3: what is the allowed threshold in price variance between the ADR and ASX (5%,10%) before the custodians work their magic
Question 4: what is the allowable timeframe for variance between the 2 prices ? Will the custodian buying and selling daily ? Weekly ? Monthly?
Question 5: how will people in Aus know what the daily trading and volume is going to be unless they have access to U.S. Data and trading account ? Should we set up a thread on HC where people with access to such data post it so that people can understand why there are price movements ?
We will need to be more patient with our holdings as I suspect there will be a delay in price movements based on buy/ sell, news, exchange rate movements due to time difference and how often the custodian will trade to maintain parity
I hope someone can help. I maybe on the wrong track but nothing much to do while waiting for the mattress news
Thanks a lot
(20min delay)