FIRSTLY - A disclosure... I used to work on the ADR desk at JP Morgan in London. I have experience of the ADR product and how they are converted to and from domestic shares. Big trading houses DO (or certainly DID) frequent conversions!!!
SO - on with the post!
The NASDAQ listing is a capital raise. It's just happening in the US and not here!
In order to create the ADRs, the company will have to issue more local shares. As far as I can tell, these shares will be held by a custodian to represent the underlying security for the ADRs. The only other way I can see the company getting local shares as security is a buy-back.... And it is my opinion only that will not happen.
In other words, new shares will have to be created and held in custody to create the ADRs.
I do not have the details, so I can only say what I think will happen, and this is in no way the truth not investment advice.
It seems possible the company will create a whole new bunch of shares and place them with a custodian (probably here in Australia. If not here, then at a depository in the US).
Whilst on paper this will not lead to local market dilution (as the shares will be held in custody as security), I'm wondering how the TOTAL amount of shares available in the company will affect the ADR pricing.....?
This is a consideration as ADRs are convertible into local shares, and so can be traded on the ASX.
Does THIS mean there will be more shares available to trade locally....?
As the point of having ADRs is to allow US investors to trade freely, conversion of ADRs to local shares is probably not something a typical US investor will do!!! It negates the whole point of owning an ADR!!!
However, entities with presence in both the US and Australia would be able to freely convert to and from ADRs for the purposes of trading on both markets..... THAT could drive some price volatility as those seeking arbitrage opportunities attempt to cash in....
Ultimately, until we know the full details of the offering, all outcomes are speculation....
We can speculate a limited number of ADRs available in the US could drive demand, creating local price growth.
HOWEVER, none of this is actually guaranteed....
Again, it will be interesting times ahead!!!
Kind regards
J.
AHI Price at posting:
$1.37 Sentiment: Buy Disclosure: Held
(20min delay)