THIS is potentially good news for the hundreds of international companies with non-exchange listed ADRs that have long had to contend with low levels of visibility and few options for communicating with their US-based investors.
StockTwits (sponsor) has for the first time added a verified investor relations account for a Level 1 ADR company – Brazil-based WEG SA, a machinery manufacturer whose ADRs trade on the over-the-counter market (OTC) under the symbol WEGZY. Prior to this, only companies listed on US stock exchanges like NASDAQ or the New York Stock Exchange were included on StockTwits.
The move is significant as it could at once address US investors’ lack of real-time access to international companies’ disclosures while helping to improve liquidity in thinly traded OTC ADRs. In a study last year, accounting professors at the Ross School of Business at the University of Michigan found that using social media can help companies overcome a lack of media and sell-side analyst coverage and improve liquidity for their stock.
Over 2,000 ADR companies lack visibility
According to Citi’s ADR group, there are more than 2,000 Level 1 ADRs based on shares of international companies currently available to US investors, including ADRs for many well-known international companies such as Nestle, Roche, Nintendo and Deutsche Telekom. However, most Level 1 ADRs trade fewer than 50,000 shares per month and are subject to wide bid-ask spreads.
International companies with Level 1 ADRs are not required to register with the US Securities and Exchange Commission (SEC) if most of their shares trade on a foreign market and they post certain disclosure information in English on their websites or foreign regulatory databases that are readily accessible to US investors. International companies use Level 1 ADRs to provide US investors convenient access to their securities.
However, since Level 1 ADRs are not listed on major US stock exchanges, they suffer from poor visibility in the market while news and information about them is harder to come by on popular US investment portals and financial information services.
This lack of visibility is one of the major reasons why Level 1 ADRs are so thinly traded. While Level 1 ADRs far outnumber their exchange-listed Level 2 and Level 3 counterparts, they accounted for just 3% of all ADR trading volume in the first quarter of 2011, according to J.P. Morgan’s Depositary Receipt services.
Social media offers opportunities
ADR depositaries like Bank of New York Mellon and JPMorgan have long tried to increase the availability of information to US investors, both by establishing their own ADR web portals and by encouraging data vendors to distribute ADR companies’ information. However, these efforts have met with limited success.
Meanwhile, the rise of social media like Twitter, Facebook, YouTube and SlideShare have opened up new avenues for Level 1 ADR companies to address their visibility challenges and to more easily connect with their US-based investors. Many have set up accounts on these services over the past few years with mixed results.
However, with StockTwits supporting tickers for Level 1 ADRs, these companies will have the ability to reach a more qualified investor audience. Additional visibility may also come from StockTwits’ syndication deals with several major finance portals in the US, including Yahoo! Finance, CNN Money and Reuters, none of which currently index press releases and other information from Level 1 ADR companies.
Of StockTwits’ syndication partners, Reuters.com seems most ready to start posting StockTwits messages on the “Pulse” pages of its Level 1 ADR ticker pages, although nothing is showing on WEG’s page yet.
WEG’s investor relations manager Luis Fernando Moran de Oliveira, who ranks as one of the most social media savvy IROs anywhere, said the company decided to establish a Level 1 ADR program with JPMorgan Chase Bank, NA last September to provide an additional option for international investors to invest in the company’s shares and to gauge the impact it could have on overall liquidity.
“We are already using other social media tools that are not investor-centered, such as Twitter. When StockTwits asked us if we would like to claim our ticker, we immediately thought about the ADR and took the opportunity,” said de Oliveira.
“We are trying to leverage StockTwits to gain a little more exposure to the US-based investor . It’s a long term commitment, not a short term play. We plan on being around for a long time, so we are not in a hurry and we can really take our time to increase our visibility with the right investors.”
WEG’s other online IR activities include an IR website built on the WordPress content management system that is most often used for blogs, and accounts on SlideShare, Twitter, YouTube, issuu and Flickr. De Oliveira is active on a wide range of social media sites in his personal capacity. He is often one of the first in the IR community to establish accounts and try out new services.
StockTwits representatives have in the past said that the company plans to expand to other markets and will eventually support companies listed on international exchanges. However, by establishing accounts for their Level 1 ADRs, many international companies will not have to wait to begin using the service. Currently, StockTwits is not charging a fee for companies to claim their ticker symbols on the service.