The Role of the Depositary Bank - A Resource for Issuers in the Global Securities Markets - Citi
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The Role of the Depositary Bank A Resource for Issuers in the Global Securities Markets Issuer Services
3
Contents
The Role of the Depositary Bank
04 THE ROLE OF THE
DEPOSITARY BANK 14 CONCLUSION
08 ROLES AND RELATIONSHIPS
FOR THE ISSUER AND THE 15 ABOUT CITI
DEPOSITARY
09 TYPES OF DR PROGRAMS
11 REGULATORY CONSIDERATIONS
FOR DRS
13 HOW TO EVALUATE A
DEPOSITARY BANK4 Issuer Services
The Role of the Depositary Bank
Depositary Receipts (DR) were created in 1927 to assist U.S. investors seeking to purchase shares
of non-U.S. corporations. Since then, DRs have grown into widely accepted flexible instruments
that serve as an effective option for companies seeking to further tap global capital markets and
expand their equity base outside their home market. Issuers establishing DR programs may benefit
from a broadened investor base, potentially increasing liquidity as a result of an expanded market,
and enhanced visibility. From the investor perspective, DRs have long been a popular instrument
in worldwide capital markets, particularly where the elimination of custody and cross-border safe-
keeping charges are a key benefit.
Features and Benefits of Receipts (HDRs), Japanese DRs either by purchasing existing DRs
Depositary Receipts Depositary Receipts (JDRs), and or by converting shares purchased in
Brazilian Depositary Receipts (BDRs). the issuer’s home market to new DRs.
Issued by a depositary bank, a DR is
New DRs are created subsequent to the
a negotiable instrument evidencing
DRs can be publicly offered in the U.S., deposit by an investor (or broker) of
ownership of shares in an overseas
privately placed or issued pursuant to shares with the depositary’s local market
corporation. Each DR evidences
an international offering. The structure custodian. The depositary then issues
depositary shares (DSs), representing
of the DR program typically defines new DRs, which represent the shares on
a specific number of underlying
the segment of investors that can deposit, to the investor or broker. This is
shares on deposit with a custodian
purchase the securities. In the U.S., referred to as an issuance of DRs.
in the issuer’s home market. The
publicly offered securities are available
term “DR” is commonly used to refer
to the broadest spectrum of investors Conversely, an investor may cancel
to both the physical certificate as
and trade either on a national stock the DRs and sell the underlying
well as the security itself. DRs are
exchange (e.g., NASDAQ or the New ordinary shares in the relevant home
generally subject to the trading and
York Stock Exchange (NYSE)) or in the market upon delivery of the DRs
settlement procedures of the market
over-the-counter (OTC) market. GDRs and cancellation instructions to the
in which they trade. The different
are usually offered to institutional depositary, which in turn, cancels the
types of DRs are frequently identified
investors through a private offering, in DRs and notifies its custodian to release
by the markets in which they are
reliance on exemptions from registration the underlying shares. The investor or
available, or the rules and regulations
under the U.S. Securities Act of 1933. broker may then either safe-keep or sell
associated with the structures.
These exemptions are Reg S for non- the ordinary shares in the local market.
U.S. investors and Rule 144A for U.S.
For example:
investors that are Qualified Institutional Liquidity
• A
merican Depositary Receipts (ADRs) Buyers (QIBs). QIBs in the U.S. include For many DR market participants,
are DRs that are publicly available to institutions that own and invest in at liquidity — the breadth and depth of
investors in the U.S.; least $100 million in securities of non- trading activity — is considered the best
affiliates and registered broker-dealers measure for long-term success of a DR
• G
lobal Depositary Receipts (GDRs) program. Without the ability to move
that own or invest on a discretionary
are DRs that may be offered to into and out of positions of sufficient
basis at least $10 million in securities
investors in two or more markets size, institutions are often reluctant
of non-affiliates. A GDR offering often
outside the issuer’s home country, to add the security to their managed
has a Rule 144A component as well
usually pursuant to Rule 144A and portfolios. Likewise, brokers prefer to deal
as a placement to non-U.S. investors
Regulation S (Reg S) under the U.S. in liquid securities, and both sell-side and
pursuant to Reg S.
Securities Act of 1933; buy-side analysts prefer to cover liquid
• Local Depositary Receipts (LDRs) Issuance and Cancellation: Fungibility securities with high standards of financial
extend the traditional ADR concept of DRs with Ordinary Shares disclosure providing an important added
to various markets globally. Examples Based upon availability and market protection. Once established, liquidity
include Hong Kong Depositary conditions, an investor may acquire can be facilitated and maintainedThe Role of the Depositary Bank | Introduction 5
Table 1
DR Issuance Process DR Cancellation Process
1 Investor contacts 1 The investor instructs
Investor Investor
broker and requests the broker to cancel DRs
the purchase of a
DR issuer company’s 2 The broker delivers the
7 1 DRs to the depositary 1
shares. If existing DRs
of that company are not for cancellation and
2
available, the issuance instructs the depositary
DR Broker Local Broker to deliver the ordinary DR Broker
process begins
shares to a local
2 To issue new DRs, the 3 custody account
2
broker contacts a local
broker in the issuer’s 3 The depositary cancels
home market the DRs and instructs
DTC/Euroclear/ Local Stock
Clearstream Market the local custodian to Depositary
3 The local broker release and deliver the
purchases ordinary underlying shares to
shares on an exchange 6 4 the seller’s broker in the 3
in the local market issuer’s home market
5
4 Ordinary shares are Depositary Local Custodian 4 The local custodian Local Custodian
deposited with a local delivers the underlying
custodian ordinary shares as
instructed to the local 4
5 The local custodian broker. The local broker
instructs the depositary safe-keeps the ordinary
to issue DRs that shares or delivers them Local Broker
represent the shares to or on behalf of the
received new investor
6 The depositary issues
DRs and delivers them
in physical form or book
entry form through DTC/
Euroclear/Clearstream
(as applicable)
7 The broker delivers
DRs to the investor or
credits the investor’s
account
through a strong Investor Relations foreign investors may purchase at any stock. Further, changes in supply
(IR) effort and the resources of the time ordinary shares in the local market and demand may yield smaller price
depositary bank and other partners. for deposit into the DR facility. changes; and
• B
roadened opportunity for non-U.S.
Limited Two-Way Market Relaxed restrictions may benefit
investment in the local market.
Some countries, such as India, Taiwan issuers through:
and Korea, maintain restrictions on
• I ncreased opportunity for immediate A DR premium is the differential
the reissuance of DRs. In this limited
issuance of DRs; between the ordinary share price in
two-way market environment, after
the local currency and the price of
withdrawal and sale of ordinary shares • Enhanced liquidity over time as
the DR. Historically, in limited two-
from the DR facility, the shares are the ability to issue and cancel the
way markets, when the U.S. market
subject to limitations on redeposit into company’s DRs potentially enhances
outperforms the non-U.S. market,
the DR facility. Deposits may, for example, trading activity. The associated
the premium grows. When the local
occur only up to a certain prescribed limit. advantages may include higher
market outperforms the U.S. market,
Once that limit has been reached, the investor demand and higher valuation;
the premium typically shrinks.
DR facility may be closed for reissuance
• Potentially decreased risk resulting
pending receipt of required permissions.
from lower share price volatility
In contrast, most countries have an
due to a larger pool of a company’s
unlimited or free two-way market, where6 Issuer Services
The DR Ratio and as low as 1:100. The depositary stock price in line with peers in the
A primary step in establishing a DR will work with issuers to determine overseas market through the use of
program is to determine the ratio of the most appropriate ratio at the DR ratio
underlying shares to depositary receipts inception of the DR program. In
• Seamless Asset Servicing
(DRs). The share-to-DR ratio may be addition, the ratio can be adjusted at
— DR issuers can leverage depositary
established as a one-to-one or as a a future date, for example, to address
banks to provide seamless asset
multiple or fraction of the underlying changes in market conditions.
servicing, which is a benefit that is
shares. This ratio can influence the
not available in the case of ordinary
price-trading range. In setting the ratio, Depositary Receipts compared with
share listings
the issuer should consider: Ordinary Share Listings
Generally, depositary receipts provide — Issuers can benefit from the “one
• Industry peers — securities of issuers with more benefits and stop shop” in case of DRs, in which
companies in the issuer’s industry will flexibility than ordinary share listings. the depositary bank is also the
often trade in a certain price range Issuers can leverage the economies of share registrar and transfer agent;
and the issuer may want to conform scale and local market expertise of the in ordinary share listings, the issuer
to industry norms in the market depositary bank to help maximize their will have to deal with multiple
where the DR will be listed; strategic objectives in cross-border service providers.
• E
xchange options — each exchange has listings. Specifically, DRs provide the
• Cost-Effective
average price ranges for the shares following advantages over ordinary
— DR issuers can avoid the need to
listed and, generally speaking, issuers share listings:
have costly infrastructure in place
may want to conform to that range; and to service overseas listed securities
• Flexibility
• Investor appeal — U.S. Institutional — Use of the Deposit Agreement — In many cases, issuers have the
and retail investors are more likely to to facilitate local regulatory opportunity to receive financial
buy shares that they perceive to be requirements contributions to offset program-
well-priced and fairly valued. related expenses.
—D
Rs are easily fungible with ordinary
While many DR programs are shares, while listing a class of • Value-Add Services Provided by Citi
established with a 1:1 ratio (one ordinary shares does not offer the — Issuers will benefit from the
underlying share equals one DR), same level of seamless fungibility complimentary Investor Relations
DR programs have been known to (IR) Advisory services provided
— DRs provide flexibility to adjust the
have ratios as high as 100,000:1 by CitiThe Role of the Depositary Bank | Introduction 7
— Issuers will also have access to a seek to restructure their economies • E
quity-based acquisitions of non-U.S.
dedicated account manager who and reduce fiscal deficits. Infrastructure business entities.
will be a single point of contact and service enterprises such as
and will coordinate with the issuer telecommunications, utilities, airlines Strategic Objectives
and industry participants on all and petrochemicals are among those Issuers can also structure a DR program
DR-related matters including commonly targeted for privatization. based on particular corporate objectives.
regulatory and tax matters An issuer’s aims in selecting and
DRs have been used successfully by establishing a DR program to align with
— Issuers will benefit from Citi’s
governments seeking to privatize their strategic objectives may include:
equity distribution network which
state-owned enterprises. Privatizations
will help gauge investor sentiment • Expanding its shareholder base;
require a successful offering of
on real-time basis and facilitate
securities to investors, and DRs provide • G
aining international recognition
systematic investor targeting.
an effective mechanism both to for the company name and for its
increase private ownership and to raise products and services;
Cross-border Transactional capital overseas.
• Using DRs as a capital-raising tool;
benefits of DRs
and
DRs can play a critical role in multiple M&A and Other Corporate Actions
types of cross-border transactions, DRs can enhance the ease of trading • P
roviding a convenient investment
such as privatizations, mergers and and settlement related to cross-border vehicle for its globally based employees.
acquisitions, corporate actions, and mergers and acquisitions. Types of M&A
strategic Issuer objectives. transaction that have made successful Benefits of a DR program specific to
use of DRs include: issuers and investors are highlighted
Privatizations in Table 2.
• Spin-offs of non-U.S. subsidiaries;
The privatization of state-owned
assets is an important undertaking for • E
quity-based acquisitions of U.S.
governments worldwide, as countries business entities; and
Table 2: Benefits of a DR Program
DRs enable issuers to: DRs aid investors by:
Access capital outside the issuer’s home market Facilitating diversification into non-U.S. securities
Build issuer visibility in the United States and/or internationally Trading, clearing and settling in accordance with the practices of
the investor’s home market
Broaden and diversify issuer shareholder base Eliminating cross-border custody safe-keeping changes
Increased opportunities to increase local share prices as a result of Enhancing accessibility of research and of price and trading
global demand/trading information
Enlarge the market for the issuer’s shares, potentially increasing Allowing easy comparison to securities or similar companies
liquidity trading in the investors’ home market
Adjust share price levels to those of peers through a DR ratio Permitting dividend payments in U.S. dollars and corporate action
processing
Utilize DRs to facilitate privatizations, M&A and strategic corporate Enabling uniform proxy and corporate action processing
objectives for the Issuer
Develop stock option plans and stock purchase plans for employees Providing opportunities to move between markets
outside the issuer’s home market8 Issuer Services
Roles and Relationships for the Issuer
and the Depositary
In order to establish any type of DR Table 3: Roles in the establishment of a DR program
program, the issuer assembles a team
of advisors that typically includes Role of depositary: Role of issuer:
investment bankers, lawyers and
Consult on DR facility structure Determine corporate and financial
accountants. The issuer also selects objectives
a depositary bank, a key partner that
enlists the services of a local market Appoint custodian Appoint depositary, legal counsel,
investment bank and accountants
custodian and other key support
service providers to assist in the Assist with DR requirements Determine program type
implementation of the program.
Coordinate with lawyers and investment Obtain approval from board of directors,
bankers to ensure that all the shareholders and regulators as needed
Once the issuer and its advisors have implementation steps are in place
evaluated the company’s unique needs,
and have determined the type of DR Prepare and issue DRs Provide financial information to
accountants and advisors
program best suited to its objectives,
the issuer and the depositary execute Announce program establishment to Develop an investor relations plan
a deposit agreement, a contract investor community
which sets forth the terms of the DR
program. Based upon the contract, the Table 4: Roles in the ongoing development of a DR program
depositary performs certain specific
services on behalf of the issuer and Role of depositary: Role of issuer:
the DR holders. Many of these same
Issue and cancel DRs Provide required certificates to the DR bank
parties may play key roles in the
and the issuance of DRs, if needed
long-term development and day-to-
day management of the issuer’s DR Serve as registrar and transfer Communicate with depositary regarding
program; however, the depositary bank agent for the DRs the DR program including potential
program changes
will remain a critical liaison between
the issuer and brokers and investors, Act as paying agent, processing Pay dividends to local custodian for
while the functions of lawyers and dividend payments or other transfer to the DR holders
accountants become focused on entitlements for DR holders
periodic reporting. In addition, the Process corporate actions Communicate with depositary on
investment bankers are typically not corporate actions
involved with a DR program unless
Provide ongoing account management Ongoing regulatory reporting and filing
the issuer is intending to go back to
support to the issuer
the market.
Coordinate proxy process for Communicate with depository for
DR holders shareholder services
Offer value-added services such as Maintain an investor relations plan
investor relations counselThe Role of the Depositary Bank | Types of DR Programs 9
Types of DR Programs
DRs may be structured as: Exchange Act of 1934, and file an initial GDR Programs (Rule 144A & Reg S)
registration statement and periodic GDRs allow an issuer to raise capital
• ADRs listed on a U.S. exchange such
financial reports. Issuers that are listing through a global offering. Global
as the NASDAQ Stock Market or the
their securities must fully reconcile all offerings allow issuers to access
NYSE (Level II);
financial statements to U.S. generally shareholders in capital markets outside
• A
DRs issued as a public offering accepted accounting principles (U.S. the issuer’s home market. GDRs use
of securities on a U.S. exchange GAAP) or international financial a global settlement convention which
(Level III); reporting standards (IFRS) (or include may include the Depository Trust
U.S. GAAP financials), as published by Company, Euroclear and Clearstream to
• GDRs placed with QIBs in the Rule
the International Accounting Standards provide global clearing and settlement,
144A market;
Board. Listing securities on an ultimately promoting increased liquidity
• G
DRs placed outside the U.S. in exchange in the U.S. exempts non-U.S. through cross-border trading. GDRs
accordance with Reg S (note that issuers from complying with various can be issued in either the public or
Reg S programs are often offered in state securities regulations. private market. Most GDRs include an
global markets in conjunction with international tranche placed pursuant
144A programs in the U.S. market); In a Level III ADR program, the issuer to Regulation S outside the U.S. GDRs
offers new shares to U.S. investors in placed in Europe are often listed on
• ADRs traded over-the-counter (OTC)
ADR form. A public offering provides the Luxembourg or London Exchanges.
through OTC markets (Level 1).
the issuer with the ability to raise Several additional listing destinations
U.S.-Listed ADR Programs capital by accessing the broadest U.S. have become viable, potentially
(Level II and Level III) investor base. In order to conduct an expanding the opportunities for DR
Listing on one of the U.S. national initial public offering (IPO) in the U.S., issuers. These include the Singapore
exchanges can promote active trading the issuer must: Exchange, Frankfurt Stock Exchange
in ADRs and may increase the issuer’s and NASDAQ Dubai.
• S
ubmit Form F-1 to the Securities
visibility within the U.S. Listed ADRs and Exchange Commission (SEC) to
typically receive wider research Additionally, GDRs can include a U.S.
register the underlying securities to
coverage by U.S. analysts and the tranche which can be privately placed.
be offered;
financial media, hence providing These DRs are offered pursuant to Rule
• F
ully reconcile its financial 144A, adopted in 1990, which greatly
investors with increased information
statements to U.S. GAAP or IFRS (or increased the liquidity of privately
about the issuer and its securities.
include U.S. GAAP financials); and placed securities by allowing QIBs to
Issuers can also use ADRs to access resell those securities privately to other
• S
ubmit Form F-6 to the SEC to register
institutional investors that may be QIBs without a holding requirement or
the ADRs issued by the depositary.
prohibited or limited by their respective other formalities.
charters, or by regulation, from In establishing a Level III ADR program,
investing in non-U.S. securities. In The evolution of region-specific DRs is
the issuer also selects an investment
addition, U.S. investors may prefer evidence of the flexibility of the GDR,
bank to advise on and underwrite the
to purchase ADRs rather than shares allowing issuers to select the investor
offering and to market the ADRs to
in the issuer’s home market as the base they wish to access and broaden
U.S. investors. Once the offering has
DR securities trade, clear and settle their shareholder base into new
been completed, the ADR program is
according to U.S. market conventions. markets. For example, an issuer could
maintained as a listed facility and can
establish a GDR program that targets
typically accept ongoing deposits from
For a Level II ADR program, in which the European, Asian and/or Latin American
investors for ADR issuance. An issuer
ADRs are listed in the U.S., the issuer investors and does not offer shares in
may also raise capital in subsequent
must comply with the requirements of the U.S. Over time, the GDR program
offerings. In such a follow-on offering,
the relevant stock exchange. The issuer could be enhanced to reach additional
the issuer may file a Form F-2 or Form
must also register under the Securities markets and investors.
F-3 with the SEC.
Act of 1933 and the Securities10 Issuer Services
Over-the-Counter Traded ADR OTC-traded ADRs provide investors as ADRs are quoted in and pay dividends
Programs (Level I) access to incremental pools in U.S. dollars, this overcomes obstacles
An over-the-counter traded ADR of capital through U.S. funds that are investors may have with purchasing
program (Level I) is the most cost- mandated to invest in U.S. dollars or do securities outside their local market.
effective way for a non-U.S. company not have local custody capabilities to
to have its equity traded in the U.S. invest in the ordinary shares. In order to establish a sponsored Level I
and access the incremental pool of ADR program in the U.S., the issuer must:
available capital. Level I ADRs are OTC-traded ADRs provide a multitude of • Confirm and qualify for Rule
traded on the OTC Markets platform, benefits to issuers seeking to test the 12g3-2(b) exemption
which includes three trading levels: U.S. equity markets and build a core
level of ADR holders, prior to exchange • F
ile Form F-6 with the SEC which
• O
TC Pink: A centralized marketplace
listing or raising capital by Level III includes the Deposit Agreement as
designed for all types of companies
issuances. Level I ADRs have minimal an exhibit.
with no specific financial standards or
regulatory requirements in which no
reporting requirements. The platform A Level I ADR can be “sponsored” by
reconciliation of financial statements to
is further sub-categorized by the levels a single depositary bank involving the
U.S. GAAP is required and exemption is
of information that issuers provide issuer or “unsponsored” by multiple
granted from Sarbanes-Oxley Act and
and is a stepping stone platform for depositary banks with no involvement
other U.S. reporting requirements under
entrance into the U.S. markets with from the issuer. Unsponsored ADRs
SEC Rule 12g3-2(b). As a result, OTC-
limited requirements from issuers. are created based on investor demand
traded ADRs are the simplest and most
• O
TCQB: For small or developing cost-effective type of ADR program to and the result of access is the same
companies that meet certain establish, while affording issuers access compared to a sponsored Level I program
minimum reporting criteria and must to a diversified shareholder base. as both trade on the OTC market. In an
pass an annual review. unsponsored program, the issuer must
Similarly, investors can achieve a wide still qualify for 12g3-2(b) exemption and
• O
TCQX: Exclusively for companies
range of benefits from Level I ADR the depositary bank will file the F-6 and
that meet the financial standards
programs. These programs facilitate perform most corporate action services.
and undergo a qualitative review.
investor’s desire for diversification and
To qualify, companies must meet Ultimately the choice between listed and
trade, clear and settle in accordance with
financial standards, be current in their OTC-traded DRs depends on the issuer’s
practices in the investor’s home market,
disclosure, and be sponsored by a strategic objectives and how it wants to
eliminating the need for local custody
professional third-party advisor. leverage the DR vehicle.
and safe-keeping solutions. Additionally,
Table 5: A Snapshot of DR Program Types
U.S. Market International Market
Broaden Shareholder Base with Existing
Raise Capital with New Shares
Shares
U.S. Listing and U.S. Private Non-U.S. Private
Over-the-Counter U.S. Listing
Public Offering Placement Placement
Level I (ADR) Level II (ADR)
Level III (ADR) Rule 144A (GDR) Regulation S (GDR)
Description • Unlisted Program in • Listed on a major U.S. • Offered and listed on • Private placement • Placement in non-U.S.
the U.S. Exchange a major U.S. Exchange in U.S. to Qualified markets
Institutional Buyers •M
ay also be accompanied
(QIBs) by a U.S. tranche as a
Rule 144A placement
Trading • OTC: Quoted in the • NYSE or NASDAQ • NYSE or NASDAQ • In U.S. 144A DRs are • Usually a non-U.S.
Pink Sheets, OTCQB, traded OTC Exchange
or OTCQX
SEC and GAAP • No U.S. GAAP • Full SEC compliance • Full SEC compliance • GAAP conformity • GAAP conformity not
Requirement reconciliation including full U.S. including full U.S. not required required
required GAAP reconciliation GAAP reconciliation
or qualifying IFRS or qualifying IFRS
SEC Filings • File Form F-6 • File Form F-6, 20F • File Form F-6, F-1 • No SEC registration • No SEC registration
and 20F requirements requirementsThe Role of the Depositary Bank | Regulatory Considerations for DRs 11
Regulatory Considerations for DRs
There are various regulatory aspects to DRs which not only depend on the type of DR, but also
the market in which they operate and the issuer’s objective. However, there have been certain
regulatory changes which have facilitated the use of the DR product.
U.S. Securities Regulations an obstacle, given that most countries attempts to comply with Regulation
and DRs have tightened their compliance rules S also may claim the availability of
in recent years. In fact, many equities another applicable exemption from
Issuers of DRs must comply with the
markets outside the U.S. are known registration (such as Rule 144A).
regulations of the markets in which
to have equally strict, and perhaps Regulation S is available for offerings
their DRs are issued. In the U.S.,
even stricter, corporate governance of both equity and debt securities,
the U.S. Securities and Exchange
requirements. Some Investor Relations such as Global Depositary Receipts and
Commission (SEC) was created as
experts argue that more stringent Notes, and targeted towards non-U.S.
an independent agency of the U.S.
standards represent an opportunity for institutional investors.
government to enforce federal
companies to differentiate themselves.
securities laws governing securities
When investors calculate the risk/ Similarly, Rule 144A provides a
offerings, trading practices and persons
reward equation, there is a greater safe harbor from the registration
dealing in the securities markets.
“comfort factor” with companies requirements of the Securities Act of
The SEC protects U.S. investors and
known to have cleared certain 1933 for resales to U.S. institutional
U.S. markets by requiring disclosure
regulatory hurdles. The SEC noted investors reasonably believed to
of material facts concerning public
issuer concerns regarding some of the be “qualified institutional buyers”
offerings of securities. The SEC is
burdens caused by recent corporate (“QIBs”). QIBs include institutions that
empowered to issue regulations and
governance legislation. For example, own and invest at least $100 million in
enforce provisions of both federal
the SEC has applied and is continuing securities and also include registered
securities laws and its own regulations.
to evaluate certain exemptions for broker-dealers that own or invest, on
non-U.S. companies from provisions a discretionary basis, $10 million in
The two key U.S. securities laws with
of the Sarbanes-Oxley Act. In addition, securities of non-affiliates. As a result,
which DR issuers must comply are:
a series of reforms came into effect securities sold in a Rule 144A offering
• Securities Act of 1933; and in December 2005 that impacted the are “restricted securities” and resales
securities offering process in the U.S. inside the U.S. may only be made to
• Securities Exchange Act of 1934.
These measures simplify access to the a purchaser that the seller (and any
U.S. capital markets for both U.S. and person acting on its behalf) reasonably
The primary purpose of the Securities
non-U.S. companies, including those believes is a QIB. The seller must take
Act is to provide investors with full and
issuing DRs. reasonable steps to ensure that the
fair disclosure of material information
purchaser is aware that the seller
regarding an issuer in connection with
is relying on Rule 144A exemption.
the offer and sale of its securities. The Safe Harbor Laws of GDRs However, securities sold under Rule
Securities Exchange Act is different
through Regulation S and 144A offerings may not be the same
in that its primary purpose is to
provide investors trading securities Rule 144A class as listed or quoted securities in
Regulation S provides an exclusion the U.S., and cannot be upgraded to
in the secondary market with access
from the registration requirements of unrestricted facilities.
to full and fair disclosure of material
information about an issuer on an the Securities Act of 1933 for offerings
The availability of these exemptions
ongoing basis. made outside the U.S. by both U.S.
for GDR deals makes them an
and foreign issuers. A securities
efficient and cost-effective means
With the arrival of the more stringent offering, whether private or public,
of implementing cross-border capital-
regulatory climate in the U.S., in 2002 made by an issuer outside of the U.S.
raising transactions. The predominant
some DR issuers initially felt a need in reliance on Regulation S need not
listing venues for Reg S GDRs are
to reassess the costs compared to the be registered under the Securities Act.
the London and Luxembourg Stock
benefits of their U.S. listings. Many did The Regulation S safe harbors are non-
Exchanges, however, GDRs have
not see the U.S. regulatory climate as exclusive, meaning that an issuer that12 Issuer Services
also been listed on the Singapore the Regulation S tranche may easily reduce regulatory burdens on securities
Exchange, Frankfurt Stock Exchange be moved to a listed facility 40 days offerings and thereby facilitate
and NASDAQ Dubai. On the other after the Regulation S offering, capital formation and job creation.
hand, Rule 144A GDRs trade in the generally upgrading the Rule 144A It is said that the JOBS Act is the most
U.S. over-the-counter market. tranche is slightly more challenging. significant Congressional relaxation in
A Rule 144A facility cannot actively memory of restrictions surrounding the
When GDRs are offered simultaneously coexist with a U.S.-listed program. IPO process, public company reporting,
in Reg S and Rule 144A form, but In order to upgrade the Rule 144A and private capital formation.
in separate and distinct tranches, facility to a listed program, the issuer
they exist inside what is known as a will typically first need to file a Form The results of the JOBS Act remain
bifurcated GDR program. When the F-4 registration statement pursuant positive as the IPO market has re-
GDRs are offered simultaneously in to the Securities Act. After the F-4 energized. Specifically, DR IPO activity
Reg S and Rule 144A form, but not in registration statement has been filed, has surged as global issuers now
separate and distinct tranches, they a registered exchange offer with the view the U.S. as a more attractive
exist inside what is known as a unitary QIBs may be undertaken to exchange international listing destination due to a
GDR program. GDRs can also be offered Rule 144A GDRs with ADRs. Under less costly regulatory environment.
in Reg S form only. certain circumstances, and if the Rule
144A program is “seasoned,” the
Due to the general flexibility afforded issuer may opt for a private exchange
by GDRs, issuers from a variety of using a certification process rather
regions, including Europe, the Middle than a registered exchange under the
East, Africa, and Asia Pacific, have Securities Act of 1933.
been utilizing GDR programs to help
meet their capital-raising needs on an
increasing basis. Regulatory Enhancements:
JOBS Act
The Jumpstart Our Business Startups
Upgrading a GDR to a Publicly Act (the “JOBS Act”), enacted on
Listed Program April 5, 2012, liberalized certain
A non-U.S. company may decide to aspects of the Securities Act of 1933
list its DRs subsequent to its global and Securities Exchange Act of 1934,
Rule 144A and Regulation S offering. in regards to registration and reporting
Upgrading from a GDR to a U.S.-listed regimes for issuers that qualify as
ADR program is a viable option for “Emerging Growth Companies”
companies wishing to achieve greater (“EGCs”) with annual revenues of less
global reach and visibility. Although than $1.07 billion. The law attempts toThe Role of the Depositary Bank | How to Evaluate a Depositary Bank 13
How to Evaluate a Depositary Bank
The depositary bank plays a critical role for issuers that wish to expand their access to capital,
broaden their investor base globally, and take advantage of all the benefits of DRs. The issuer
and the depositary bank enter into a relationship that extends through the offering process and
implementation stages and continues through to the ongoing administration of the DR program.
As a guideline for evaluating depositary • H
ow is the depositary positioned How will the Depositary
banks, the issuer should consider with investors and other global support your Investor Relations
the resources and track record market participants?
program?
of the provider, as well as its core
• Does the depositary bank have local The breadth of value-added services
competencies and value-added services
presence and commitment to the offered by a depositary can enhance a
that are offered.
home market? company’s internal investor relations
• W
hat peers in your region and (IR) effort and thus needs to be a key
Key Questions to ask a worldwide exemplify how the consideration for the issuer in selecting
Depositary Bank depositary has managed liquid a depositary services provider. Citi
DR programs? created the role of IR counsel featuring
Key questions include the following:
highly experienced former in-house IR
• H
ow extensive is the depositary • H
ow many years of experience does officers to give clients access to the
bank’s expertise in securities the organization have in serving DR expertise and resources to support
processing? issuers in your region? their international IR goals.
• C
an the depositary bank offer • W
hat awards has the depositary
bank won that represent third-party Our IR counsel not only will be
your company a complete range of
endorsements of its superiority over the trusted guide supporting your
banking and financial products?
its competitors? company’s IR journey, our team will
bring you new ideas and best practice
suggestions to support the continuous
success of your IR effort.14 Issuer Services
Conclusion
DRs can be a winning proposition for • Innovative Product Management team Global Distribution
global financial markets, benefiting — develops solutions for enhanced Citi, the leading global bank, has
non-U.S. issuers and international access to markets and investors. approximately 200 million customer
investors alike. For issuers, a DR accounts and does business in more
• Capital Markets Solutions team —
program can serve to broaden and than 160 countries and jurisdictions.
manages the relationships with
diversify a company’s shareholder base, Citi provides consumers, corporations,
brokers, investors, and intermediaries
broadening the market for its shares governments and institutions with
that transact in Citi’s sponsored
and potentially increasing liquidity. DRs a broad range of financial products
and unsponsored DR programs.
are attractive to investors worldwide and services, including consumer
who are looking to eliminate cross- • Investor Relations (IR) Advisory — a
banking and credit, corporate and
border custody safekeeping charges team of former in-house corporate
investment banking, securities
and benefit from enhanced accessibility IR executives who consult and
brokerage, transaction services,
to research and price and trading support clients in all aspects
and wealth management.
information. of their global IR objectives.
For DR clients, our services encompass
The depositary is a key partner information, support and counsel
for the issuer, both in establishing Investor Relations
to major global issuers, as well as
a DR program and in developing Citi Depositary Receipt Services’ IR
access to broad broker and investor
and administering the program on Advisory team develops a tailor-made
audiences. Citi’s network is composed
an ongoing basis. The role of the approach for each individual client,
of salespeople and sales traders around
depositary includes advising on DR taking into account the unique situation
the world, and is one of the largest
facility structure, and coordinating of every company and their specific
institutional networks for DRs. We
with lawyers and investment bankers IR objectives. Strongly focused on the
assist clients in accessing a diverse
to ensure that all implementation training and educational needs of our
range of investors, including many of
steps are completed. The critical clients, we constantly look for ways to
the largest global portfolio managers,
roles of the depositary include issuing provide clients with the knowledge base
wealth management advisory firms,
DRs and providing ongoing account to build a state-of-the-art IR program.
Separately Managed Accounts
management and IR support to (SMA) portfolios and specialized
the issuer. Throughout the year, we conduct
hedge funds. Our local presence in
roundtables and other training sessions
many markets is unmatched by any
A crucial consideration for the issuer across EMEA, Asia and Latin America,
other depositary and we facilitate
in selecting its depositary is the in person as well as virtual. We also
exceptional liquidity for our programs
depositary’s experience and offerings offer IR/DR seminars in London and
via our global distribution network.
of value-added services, which should New York. For clients who are new to IR,
complement the company’s IR effort. we conduct individual training session.
Citi’s commitment to provide issuers
with access to a comprehensive suite
In support of a depositary receipt Our highly competent IR Advisory
of value-added resources, including
program, Citi Depositary Receipt team will use their expertise to assist
a combination of global reach and
Services provides issuers with access issuers with all IR issues such as IR
local expertise, access to an industry-
to the following value-added resources: website design and evaluation, message
leading global equity distribution
development and presentation advice,
• G
lobal sales and equity distribution network and specialized global
and assistance on non-deal road shows.
network — provides access to large investor relation support, helped win
We especially focus on helping our
and mid-tier institutional investors. key depositary bank mandates.
clients to develop and maintain the
• D
edicated Account Management right ESG approach. Citi Depositary
For more information please
team — enabling a single point of Receipt Services’ IR counsel also will
visit www.citi.com/dr.
contact for comprehensive support. assist issuers in identifying, targeting
and accessing new investors, thus
• S
pecialized Structuring and
supporting their goal to achieve
Implementation team — oversees the
greater liquidity in their DR program.
efficient execution of transactions.15 About Citi Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.
Issuer Services https://www.citi.com/icg/bcma/issuer-services/ © 2021 Citibank, N.A. All rights reserved. Citi and Arc Design is a registered service mark of Citigroup Inc. The above information is being provided solely for information purposes by Citi. At the time of publication, this information was believed to be accurate, but Citi makes no representation or warranty as to correctness of the information set forth above. The above information does not constitute a recommendation, solicitation or offer by Citi for the purchase or sale of any securities, nor shall this material be construed in any way as investment or legal advice or a recommendation, reference or endorsement by Citi. Certain GDR facilities have not been registered under the Securities Act of 1933 (“the Securities Act”). Neither these GDRs nor the underlying securities may be resold unless registered under the Securities Act or pursuant to an exemption from registration thereunder. These GDRs may only be issued or sold to certain investors upon the provision of appropriate certifications and representations. Do not pass on any information with respect to the GDRs to prospective investors unless you have established that they are eligible holders of such GDRs. Nothing contained herein shall be deemed to be an offer to sell, or a solicitation of an offer to buy, any such ADRs, GDRs or underlying securities. 2021325 05/21
You can also read
