Zambia Woos U.S. Investors With Bank to Beef Depositary Receipts

Bank of New York Mellon Corp. is selling American depositary receipts for three Zambian companies as U.S. investors tap growth in Africa’s biggest copper producer.

The ADR programs established last month for Copperbelt Energy Corp., Zambeef Products Plc and Zambia National Commercial Bank Plc are the first in southern Africa outside South Africa, according to New York-based BNY Mellon, the world’s biggest issuer of the receipts.

“Investors recognize the fact that Africa is really the last substantial continent to offer genuine frontier markets with very real growth prospects,” said Mary Gormley, the bank’s London-based managing director of depositary receipts for sub-Saharan Africa.

Southern Africa is the world’s fastest growing region after developing Asia with the International Monetary Fund forecasting Zambia’s economy will expand 6 percent this year. While the ADRs raise the profile of local companies, with BNY Mellon reporting interest from emerging market funds, the securities risk draining liquidity from the stock market in the Zambian capital, Lusaka, said Caesar Siwale, chief executive officer of Pangea Securities Ltd. in the city.

“It’s a very positive thing for Zambia and it’s an affirmation of the good fundamentals,” Siwale said yesterday in an interview from Lusaka. “But, it will probably end up making the liquidity situation on the local market worse.”

Unsponsored ADRs

Because the three ADRs are unsponsored, which means the programs aren’t backed by the companies, they will tie up blocks of shares that can no longer be traded in Lusaka, said Charles Mate, managing director of Stockbrokers Zambia Ltd. It would be better if the companies established sponsored ADRs, involving the sale of new shares to U.S. investors, he said.

That “creates a win-win situation all round,” said Mate. “The current arrangement is not going to be liquidity-enhancing for the Lusaka stock exchange.”

Zambia’s all-share index has advanced 28 percent this year, outpacing a 15 percent gain in the Dow Jones Industrial Average over the same period. Zambeef, which produces beef, poultry and cooking oil, and owns its own retail stores, has climbed 17 percent, while Zambia National Commercial Bank has surged 39 percent. Copperbelt Energy, the biggest supplier of power to mines in Zambia, has declined 0.2 percent.

While ADRs offer U.S. investors the opportunity to profit from growth in countries such as Zambia, they also benefit local stock markets and share prices, according to a BNY Mellon-sponsored study in 2008 by U.K.-based Oxford Metrica. Liquidity on home markets for a listed ADR increases by an average 32 percent, the study found.

More Attractive

“What we hope with the depositary receipts, and the next thing really for us, is to encourage the issuers to sponsor them which tends to help make them more attractive and more liquid,” said Gormley, adding that access to U.S. investors will over time create additional liquidity.

BNY Mellon has approached all three Zambian companies about the possibility of sponsored ADRs, she said.

South Africa has 90 listed depositary receipts, of which 60 are sponsored, Gormley said by phone from London on Oct. 3. International investors have asked BNY Mellon to establish ADRs for other countries, including Namibia and Botswana, she said.

“For many years now, given the limited opportunities on their own doorstep, they’ve been looking at emerging markets and for the last couple of years they have begun to zone in on Africa,” Gormley said. “We expect to see the ADR story develop throughout Africa as international investors’ cash follows their interest.”

To contact the reporter on this story: Matthew Hill in Johannesburg at

To contact the editor responsible for this story: Antony Sguazzin at

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