Eletrobrás (Centrais Elétricas Brasileiras), Brazil's state-controlled power and distribution company, was listed this Friday, October 31, on the New York Stock Exchange (NYSE) through the use of American Depositary Receipts (ADRs).
An ADR is a receipt that, like a stock certificate, represents an ownership interest in non-U.S. securities. For example, the holder of a listed ADR in Eletrobrás has access to an underlying share in Eletrobrás stock in Brazil.
As part of the listing process, Eletrobrás and its depositary, JPMorgan Chase, entered into a Deposit Agreement. Eletrobrás also entered a listing agreement with the NYSE and was required to prepare SEC filings to register the securities under the Exchange Act, a step concluded last month.
This was a challenge for a Brazilian company as large and unique as Eletrobrás, including the challenge of preparing detailed financial statements in accordance with U.S. GAAP (generally accepted accounting practices). However, the company deemed the effort worthwhile to raise its international profile.
"Listing on the NYSE is in line with our strategy of becoming an international company," said Luiz Augusto Figueira, Deputy CFO of Eletrobrás. "We received Congressional approval earlier this year authorizing us to act outside of Brazil, and Clifford Chance played an important role in helping us achieve today's milestone."
"Our presence in Brazil was crucial to us being able to service a client as large as Eletrobrás, which has operations throughout Brazil," said Anthony Oldfield, managing partner of Clifford Chance's Sao Paulo office, which helped Eletrobrás to be listed at the NYSE.
"We made a decision to establish a Clifford Chance office in Brazil ten years ago – well before many law firms began eyeing this market just in the last year or so. The long term commitment we've demonstrated, and the high level of client service we've delivered here, is something we're very proud of."
U.S. investors often prefer ADRs to the non-U.S. securities that they represent because they trade and settle in the United States as if they were a U.S. security. They are traded in U.S. dollars, and dividends on the underlying securities are converted into U.S. dollars.
Sara Hanks, a partner in Clifford Chance's Corporate Finance practice in New York, says that unlike the traditional route to an NYSE listing – an initial public offering – the Eletrobrás listing was done without capital-raising.
"Eletrobrás is obviously one of the largest companies in South America and incredibly well capitalized," said Ms. Hanks. "Listing itself on the NYSE allows our client to raise its profile in the United States and encourage more trading in the company's securities. This is a great day for them."