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It's always a good idea to read the fine print in a contract, even if it's so thin that it looks like a straight line. And it's a good idea to read an IPO's "red herring." One will find valuable information within its pages.

The "red herring" is Wall Street jargon for a preliminary prospectus. Its contents are littered with words of wisdom. As an example, let's start with this week's IPO calendar and its single listing.

Cencosud S.A. plans to price 91.3 million American Depository Shares (ADS) on Thursday evening. The ADS are expected to start trading Friday morning on the New York Stock Exchange under the proposed symbol [[CNCO]]. The joint-lead managers are J.P. Morgan, UBS Investment Bank, Morgan Stanley and Credit Suisse. The co-managers are BBVA and Santander.

Based in Santiago, Chile, Cencosud is a multi-brand retailer in South America operating supermarkets, home improvement stores, shopping centers and department stores in Chile, Argentina, Brazil, Colombia and Peru. Its business consists of six segments, including four retail segments. The company was formed in 1977. It has nearly 140,000 employees.

Various IPO services are carrying the deal as an initial public offering. It is not. Let's go to the "red herring."

There is no mention in the prospectus that this offering is an "initial public offering." For that matter, the first referral to an "initial public offering" is found on page 9 of the preliminary prospectus. It states: "In 2004, following our initial public offering in Chile ..."

The third paragraph on the "red herring's" cover page states: "Our shares are listed on the Santiago Stock Exchange, the Bolsa Electronica de Chile and the Valparaiso Stock Exchange under the symbol 'CENCOSUD.'"

The deal is a secondary offering. You can front run it by buying shares on the company's home stock exchanges.

From Jamaica, With Love

Nevertheless, it is not unusual for people to think of foreign-based companies offering ADS in the U.S. capital market as IPOs. Let's take a look at a recent filing of another foreign company planning to offer ADS in the U.S.

On May 21, National Commercial Bank Jamaica Ltd. filed for a public offering to raise $225 million in the form of ADS. The shares are expected to be traded on the New York Stock Exchange under the proposed symbol [[NCJ]]. The joint-lead managers are J.P.Morgan and Macquarie Capital. The co-managers are Canaccord Genuity and CIBC.

Based in Jamaica, West Indies, National Commercial Bank believes it is Jamaica's largest and most profitable banking and financial services group. The company provides individual consumers, small- and medium-sized enterprises, large corporations and government institutions with banking, wealth management, insurance and pension fund management products and services. National Commercial Bank was formed in 1837. It has about 2,100 employees.

Let's go to the "red herring."

On the front page, you'll find the following statement: "This is the initial public offering of our American depositary shares." It also states that the ADS are represented by ordinary shares, noting: "Our ordinary shares are listed on the Jamaica Stock Exchange, or 'JSE,' and the Trinidad and Tobago Stock Exchange, or 'TTSE,' under the symbol 'NCBJ.'"

On page 49, the "red herring" shows its shares being traded on both stock exchanges dating back to 2007.

The deal is a secondary offering. You can front run it by buying shares on its home stock exchange.

However, there is more in a "red herring" than the above examples of foreign-based companies coming to Wall Street. Arguably, the most important feature is called the "Risk Factors," which it can go on for pages. Some of those statements can be hair raising. We'll examine a couple next week.

Stay tuned.

Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.

Source: The IPO Buzz: Reading The Fine Print