RE: Pofcy/adr28 May 2024 17:35
ADR trading is complex, ownership is not absolute.
When trading ADRs of a company that has suspended its shares in the UK, it's important to understand the technicalities involved, especially regarding legal ownership of the actual shares.
When you buy ADRs, you do not directly own the underlying shares of the foreign company. Instead, you own a receipt that represents ownership of those shares. The legal ownership of the actual shares remains with the depositary bank that issued the ADRs.
A depositary bank holds the actual shares of the foreign company on behalf of ADR holders. The bank takes care of all administrative tasks related to the shares, including collecting dividends and distributing them to ADR holders.
ADR holders are entitled to receive dividends in U.S. dollars, which are paid by the depositary bank based on the dividends received from the foreign company. However, the suspension of trading in the UK may impact the company's ability to pay dividends.
In the case of corporate actions such as mergers, acquisitions, or stock splits, the depositary bank will handle the necessary adjustments to the ADRs. A suspended trading status in the UK may complicate the handling of such corporate actions.
Investing in ADRs involves compliance with U.S. securities laws and regulations. A suspended trading status in the UK may trigger additional regulatory considerations or reporting requirements and carries market risks, including currency exchange rate fluctuations, liquidity risks, and price volatility. The suspension of trading in the UK may exacerbate these risks or introduce new uncertainties.
There is no way shorters can buy over there and use them to give back as they don’t own the shares. The banks selling the ADRs would not do so if a massive D4E is on the cards. Petrofac may have legal requirements in the use to report to the shareholders - the banks - which are reassured that Petrofac is not going bust and its clients are mot being sold a pig in a poke. If D4E is unlikely, given the legal nature of ADR trading what is left?
Errr? Whisper it, a takeover? It can only be that in reality or an MBO.
In conclusion, while buying ADRs of a company with suspended shares in the UK is technically possible, investors should carefully consider the legal ownership structure, custodial arrangements, rights and dividends, corporate actions, regulatory compliance, and market risks involved. It is advisable to seek guidance from financial advisors or legal experts to fully understand the implications before making investment decisions in such situations.