14 November 2007 – The Aleph Blog

Fighting Illiquidity in my Nonsponsored ADRs

Posted on 14 November 2007 by David Merkel

I own three nonsponsored ADRs, and the liquidity of them is relatively poor: Royal Bank of Scotland [RBSPF], Dorel Industries, and Lafarge SA.? I have an opportunity now to improve the liquidity of Royal Bank of Scotland now.? They have recently created a sponsored ADR [ticker RBS].? I wrote Investor Relations at RBS to see if I could exchange my nonsponsored ADR shares for the new sponsored shares.? This is what they wrote back:

Dear Mr Merkel,

Thank you for your email regarding your RBS shareholding.

In order to convert your RBSPF ADRs your broker will need to contact our US depositary and paying agent, the Bank of New York who can transfer your shares to their CREST account and issue you with new ADRs. Contact details for the Bank of New York conversion desk are as follows:

Jaswinder Goraya or Rubely Marte – tel no 212 815 4502 / 2724

Your broker will also need to advise the Bank of New York’s Manchester office of the deposit into their CREST account.

Contact details:

Luke Owen or Mike Ashcroft – tel no. 0161 725 3433 / 3438

Please note that Stamp Duty Tax will need to be paid on each share as well as an ADR conversion fee. With the US share price currently at US$9.24 the conversion fee would be 4 cents per ADR (Please see attached Standard Fee schedule).

If you require further information please do not hesitate to contact me.

So, I contacted Fidelity, and we are doing this.? One down, two to go.? Perhaps my next move is to contact Dorel Industries and see if I can exchange my illiquid ADRs for shares that trade in Toronto.

Full disclosure: long RBSPF, DIIB, and LFRGY (pink sheets all)

Boing!

Posted on 14 November 2007 by David Merkel

Okay, so we got the bounce.? Or, at least the start of it; the market is not short-term oversold anymore.? The reasons behind the rally are a lot smaller than the run we had today; chalk it up to a previously oversold market.

So where do we go from here?? I’m not sure.? None of the long term problems that the market faces have changed, but neither has the relatively low yields of investment grade corporate debt.

One stock that lagged today was National Atlantic.? After the close they announced that they had appointed Bank of America to look into strategic options.? Not sure why they chose BofA; Citigroup brought them public, and kept coverage on them amid their stumbles, not like some.? National Atlantic should jump a little tomorrow.? (Boing!)? Personally, I view the odds of an outright buyout as low, but who can tell here?? The discount to book is significant, and I regard the DAC and tax assets as valuable; they should be included in tangible book.? At this point also, the reserves are clean; they’ve been scrubbed every which way, and should be regarded as sufficient.

National Atlantic is my largest position, and I expect to realize something over $10 before this is done.? Be aware that the stock is illiquid, and that operating results have been uneven over time, to put it mildly.

Full disclosure: long a very illiquid little stock, NAHC