South African depository receipts explained

Definition

South African Depository Receipts (SADRs) are financial instruments that allow investors outside of South Africa to indirectly invest in securities listed on the Johannesburg Stock Exchange (JSE).

What are South African depository receipts?

SADRs represent ownership of shares in South African companies, but they are issued and traded on exchanges outside of South Africa, typically in international financial centres like London or New York.

With SADRs international investors get a convenient and cost-effective way to access South African equities and diversify their investment portfolios. They enable investors to participate in the growth potential of the South African economy and its leading companies while benefiting from the liquidity and transparency of international financial markets.

The trading of SADRs are subject to regulatory oversight by relevant authorities in the jurisdiction where they are listed. Additionally, the underlying South African companies must comply with regulatory requirements set forth by the JSE and other regulatory bodies.

Investors in SADRs are exposed to currency risk, as fluctuations in exchange rates between the foreign currency denomination of the SADRs and the investor’s home currency can impact investment returns. However, for investors seeking exposure to South African equities, SADRs provide a means to manage this currency risk while accessing the potential returns of the South African market.

Example of South African depository receipts

Let’s consider an investor based in the United States who wants to purchase SADRs representing shares of a prominent South African mining company listed on the Johannesburg Stock Exchange (JSE). Instead of directly buying shares on the JSE, the investor buys SADRs traded on the New York Stock Exchange (NYSE), denominated in US dollars. Through these SADRs, the investor gains indirect exposure to the performance of the South African mining company without the need for international brokerage accounts or currency conversion.