Americans hot for SA sink $37bn into stocks

SHARES in South African resources companies are proving to be a hit with American investors who have already ploughed $37.8-billion (about R418.9-billion) into buying South African stocks in the US.

SHARES in South African resources companies are proving to be a hit with American investors who have already ploughed $37.8-billion (about R418.9-billion) into buying South African stocks in the US.

Ninety-five of South Africa's JSE-listed companies offer American depositary receipts (ADRs) in the US, stock sold in dollars backed by the underlying shares back at home. This number has grown from the 85 SA companies that punted their shares to Americans the year before.

By the end of September, the total value of South African companies with ADRs in the US stood at $37.8-billion - a 6.1% rise on the previous year.

While the overall performance of SA companies in the US has been flat since January, there were big rewards for Americans who picked the right shares. For the year to date, gold mining company Sibanye is the best performer, up 74.8%. Gold Fields, the former parent company of Sibanye, was the second-best performer, up 24%.

Petrochemical giant Sasol was the third best, although its price actually fell 0.1% - a reflection of the oil price strain over the past month particularly - according to data provided by BNY Mellon, the world's largest depositary for American and global depositary receipts.

But the same stock performed very differently on the JSE and the New York Stock Exchange, partly a reflection of the sharp currency swings between the rand and the dollar, which affect the value of dividends.

Over the past year, Sasol's share price on the JSE has gained 6.5%, outperforming the New York Stock Exchange's composite index, which gained 3.9%. But Sasol's US stock fell 1.5% over that time, reflecting the fact that it performed below par in the US.

Gold Fields also performed better on the JSE than in New York, as was the case with Sibanye.

Resources and construction companies remain particularly popular, perhaps because of greater interest in infrastructure investment in emerging markets, according to Deutsche Bank, which also handles ADR programmes. About 80% of the South African ADRs are issued through BNY Mellon.

Lauren de Klerk, vice-president of BNY Mellon's depositary receipt division, said that "the ADR does not provide protection from the exchange rate fluctuations". With the rand having fallen against the dollar this year, this means the dividends the US investors get will have dropped alongside that.

Perhaps due to this, said Samantha Forbes, a spokes-woman for Deutsche Bank, the inflow has been fairly flat in the past three months.

"We have not seen a material trend to say that more investors are buying South African ADRs. In the last quarterly filings, there was a $489-million outflow and $465-million inflow. However, there are 369 reported investors in South African ADRs with some of the large investors investing in over 20 of the South African ADR programmes," she said.

South African companies list their stock in the US for a number of reasons, including to boost their public profile, increase liquidity in the stock and, in some cases, raise new cash.

Some of them believe it's been invaluable.

Clover's company secretary Jacques van Heerden said that since the dairy company began selling ADRs in 2010, it was "a more convenient way of marketing our investment case internationally, requiring significantly less resources and management time than a direct listing would. It is also a more cost-effective model".

Blue Label Telecoms spokes-man Michael Campbell said foreign shareholders now represent nearly 20% of the firm's shareholder base - providing "a raft of offshore investors who ordinarily would not have considered investing in the stock".

Altogether, 74 billion ADRs traded worldwide this year, of which only 1.4 billion traded in South Africa by June. But other Brics members did better - in Brazil 17.9 billion worth $191.5-billion traded, while 11.9 billion Chinese ADRs worth $191.5-billion traded.

South African companies first hit on the idea of using depositary receipt programmes in the 1960s and 1970s.

At the time, the big companies used it: Anglo American, East Rand and South Vaal.

In 1998 the first offshore listings from South Africa appeared on the New York Stock Exchange by AngloGold and, later, Sappi.