An Overview of...

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AgendaAgenda

What is a Depository Receipt (DR)…?

DR Structure

Levels of DR

Types of DR

Benefits of DR

Parties Involved in a DR Program

DR Issuance & Cancellation Process

Concept of DR Ratio

Payment of Dividends and Voting

UKLA Listing Requirements

Contents of Prospectus

DR Market Highlights

Glossary

By Amardeep Singh9711071834amar.cbs@gmail.com

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What is a Depository Receipt…?What is a Depository Receipt…?

A Depositary Receipt is a negotiable security that represents an ownership interest

in securities of a foreign issuer typically trading outside its home market.

Depositary Receipts are created when a broker purchases a non-U.S. company's

shares on its home stock market and delivers the shares to the depositary's local

custodian bank, and then instructs the depositary bank to issue Depositary Receipts.

In addition, Depositary Receipts may also be purchased in the secondary trading

market.

They may trade freely, just like any other security, either on an exchange or in the

over-the-counter market and can be used to raise capital.

ADRs were the first type of depositary receipt to evolve. They were introduced in

1927 in response to a law passed in Britain, which prohibited British companies from

registering shares overseas without a British-based transfer agent.

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Depository Receipts StructureDepository Receipts Structure

64%45%

36%55%

2002-2004 2005-2007

ADR GDR

Capital Raising by Structure

While depositary receipt programs can be structured in a variety of ways, there are two basic options:

American Depositary Receipt (ADR) programs, which give Non-U.S. companies access to the US capital markets, and

Global Depositary Receipt (GDR) programs, which provide exposure to the global markets (except U.S.) outside the issuer’s home market and the institutional investor market in the U.S. Currently the London Stock Exchange (LSE) is most frequently utilized by GDR issuers. Other exchanges which list GDRs include Luxembourg, Dubai International Financial Exchange (DIFX), or the Singapore Stock Exchange.

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Level I ADR Over-the-Counter (OTC) Traded

Level I GDR Unlisted

Level II ADRU.S. Listed

Level II GDRInternationally Listed

Level III ADRU.S. Listed

Level III GDRInternationally Listed

Selling New Shares

(Capital Raising Transactions)

Existing Shares Only

(Non-Capital Raising Transactions)

Rule 144A - Rule 144A ADR, or restricted ADR (RADR) are simply privately placed depositary receipts which are issued and traded in accordance with Rule 144A. Under this program, DRs are privately placed in the U.S. to Qualified Institutional Buyers (QIBs)

Regulation S – Regulation S programs provide for the placement of Depository Receipts offshore to Non-US investors in compliance with SEC Regulation S

Issuer

Levels of DRLevels of DR

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Issued by one depository appointed by the company under a Deposit Agreement or service contract

May be issued in different levels (level I, II or III)

Company bears all expenses

New capital may also be raised under this option

Set up at the request of 3rd party without any formal agreement with company

Issued by one or more depositories in response to market demand

3rd party pays all set up and maintenance expenses

No new capital is raised

Types of DRs

Sponsored DRs Unsponsored DRs

Types of Depository ReceiptsTypes of Depository Receipts

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Benefits of Depository ReceiptsBenefits of Depository Receipts

Benefits to IssuerBenefits to Issuer

Offer a new avenue for raising equity capital outside the issuer’s home market

Broaden and diversify a company’s investor base

Establish/increase total global issuer liquidity by attracting new investors

Enhance a company’s visibility, status and profile internationally among institutional

investors

Develop and/or increase research coverage outside the home market

Get an international valuation as the Company is valued alongside its peer group

Adjust share price levels to those of peers through DR Ratio

Facilitate M&A activity through use as acquisition currency

Expand opportunity to increase local share price as a result of global demand/trading

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Benefits of Depository Receipts ... cont’dBenefits of Depository Receipts ... cont’d

Benefits to InvestorsBenefits to Investors

Facilitate diversification into securities of foreign issuers

Represent a way to provide international exposure for institutional investors (mutual

funds, pension funds) despite restrictions against investing in certain countries or in

foreign investment instruments

Easier to purchase and to hold than the issuer’s underlying ordinary shares

Trade easily and conveniently in US dollars and settle through established

clearinghouses

Ability to acquire the underlying securities directly upon cancellation (two-way

fungibility)

Create accessibility of price, trading information and research

Provide dividend payments in US dollars and corporate action (meetings of

shareholders, rights offerings, exchange offers, tender offers, etc.) notifications in

English

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Parties Involved in a DR ProgramParties Involved in a DR Program

Each of the above parties have various roles to play and must coordinate with each other effectively to ensure that the DR issue

process is carried out successfully

Issuer

Depository

Legal Counsel

I-Banks/Underwriters

Custodian

Accountants

Investor Relation

Firm

PARTIESINVOLVED

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Roles & Responsibilities of Parties InvolvedRoles & Responsibilities of Parties Involved

Issuer Depository

At the time of offering… Prepare documentation working with

advisors Interact with listing authority and

respond to all questions IR/ PR targeted program

Ongoing… Provide depositary and custodian with

notices of dividends, rights offerings and other corporate actions, including meeting notices

Ongoing compliance with stock exchange and international regulations, including disclosure and reporting

Execute internationally-focused investor relations plan

Keeps market informed of developments through PRs

Regular meetings with institutional investors holding company DRs

At the time of offering… Provide advice/ perspective on type of

program, exchange or market on which to list or quote and advise on DR ratio

Appoint custodian Coordinate with all parties for timely

launch Coordinate with legal counsel on

Deposit Agreement and securities law

matters, as appropriate Announce DR program to market

Ongoing… Coordinate with issuer to announce

and process corporate actions such as dividends and shareholders’ meetings

Work with Issuer to maintain active DR program

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Roles & Responsibilities of Parties Involved … cont’dRoles & Responsibilities of Parties Involved … cont’d

At the time of offering… Prepare (issuer counsel) and/or

review (depositary counsel) offering circular and interact with authorities

Prepare draft deposit agreement (depositary bank’s counsel)

Submit requisite documents to local regulatory authorities and exchanges (issuer and placement agent counsels)

Ongoing… Manage compliance with

securities laws, rules and regulations and perfect any securities law exemptions

Provide corporate action support, whenever required

Legal Counsel

At the time of offering… Advise on size, pricing and

marketing of offering, type of program to launch and exchange or market on which to list or quote, and ratio of depositary shares to ordinary shares

Act as placement agent or underwriter in offering

Conduct road shows with management/ introduce issuer to institutional and other investors

Line up selected dealers and co-underwriters

Ongoing… Cover issuer through research

reports/ promote DRs to investors Advise on road shows, invest or

meetings, investors to target

I-Banks / Underwriters

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Roles & Responsibilities of Parties Involved … cont’dRoles & Responsibilities of Parties Involved … cont’d

At the time of offering… Receive local shares in issuer’s

home country and confirm receipt

Ongoing… Hold shares in custody for the

account of depositary Receive and deliver shares in

accordance with depositary’s instructions

Custodian

At the time of offering… Develop long-term plan to raise

awareness of issuer’s program in markets in which GDRs will trade

Develop communications plan and information materials for launch activities (road show and presentations to investors, launch day promotion, meetings with financial media)

Ongoing… Coordinate with issuer’s advertising

and public relations teams on specific program plans to support and develop company image

Continue to work with the issuer to maintain visibility and invest or knowledge in the capital markets

Arrange regular meetings for issuer with investors to keep them informed of developments/ results

Investor Relation Firm

At the time of offering… Prepare company’s accounts for

insertion into the prospectus Review prospectus and interact

with authorities

Ongoing… Audit and prepare accounts

Accountants

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DR Issuance ProcessDR Issuance Process

DR Broker

Depository

Local Broker

Local Custodian

Investor

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3

4

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6 Local Stock Market

Investor contacts broker and requests the purchase of shares of a DR issuer company. If existing DRs of that company are not available, the issuance process begins.

To issue new DRs, the broker contacts a local broker in the issuer’s home market.

The local broker purchases ordinary shares on an exchange in the local market.

Ordinary shares are deposited with a local custodian.

The local custodian instructs the depositary to issue DRs that represent the shares received.

The depositary issues DRs and delivers them in physical form or book entry form.

The broker delivers DRs to the investor or credits the investor’s account.

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DR Cancellation ProcessDR Cancellation Process

DR Broker

Local Broker

Depository

Local Custodian

Investor

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3

4

The investor instructs the broker to cancel DRs.

The broker delivers the DRs to the depositary for cancellation.

The depositary cancels the DRs and instructs the local custodian to release and deliver the underlying shares to the seller’s broker in the issuer’s home market.

The local custodian delivers the underlying ordinary shares as instructed to the local broker. The local broker safekeeps the ordinary shares or delivers them to or on behalf of the new investor.

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Concept of DR RatioConcept of DR Ratio

Each DR is backed by a specific number of an Issuer’s local shares (or a fraction

thereof). This is called the DR ratio.

The ratio is designed to set the price of each DR in a price range that is competitive

with the Issuer’s international peer group or the peer group on the exchange on

which the DR trades.

DRs are most commonly priced between $7 and $20.

The ratio of DRs to ordinary shares is usually changed if the GDR price goes well over

$20 (e.g., $50) or if it falls substantially below $7.

Changing the ratio allows the Company to keep its DR price in line with its peers and

maintain investor interest.

Note: In case the DR ratio is unity, then the depository receipts are also referred to as depository shares

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Payment of DividendsPayment of Dividends

The issuing company intimates the depository when the dividend record and

payment dates for the underlying shares is established.

The Depositary will:

Set a DR record date & payment date, and communicate these dates to markets.

Announce preliminary (estimated) dividend payment rates based upon the

exchange rate between the domestic currency and the currency of DR on the

date of the announcement.

On the dividend payment date in the home market, the custodian receives the

dividend owed on the underlying shares. The depositary will then arrange for the

dividend received to be converted from domestic currency into currency of DR.

Distribute the net dividend amount, net of any required tax withholding and any

fees, to the DR holders entitled thereto.

As the DR investor carries the foreign currency risk, the amount of the dividend will

affected by any movement of the currency of DR against the home market currency.

In case of a stock dividend, additional DRs are distributed to DR holders.

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Voting at Shareholders’ Meeting by DR HoldersVoting at Shareholders’ Meeting by DR Holders

DR holders have no direct voting rights on the shares underlying the DRs.

In case the issuer gives its DR holders the right to vote in shareholders’ meeting, it

instructs the depository to initiate the DR proxy process.

Depository (complying with the applicable legal provisions) establishes the record

date, mailing date, and voting cut-off date.

Depository informs key dates to issuer and local custodian bank (LCB).

Issuer provides depository with draft of agenda items & company notice.

Depository provides draft of depository notice of meeting and voting card to issuing

company for review. Upon approval, depository arranges for final voting packages to

be prepared and mailed to DR holders.

DR holders review the voting materials & submit their votes to depository.

Depository tabulates the DR holders’ votes & sends to issuer and LCB.

LCB forwards the results to the company’s registrar, or attends the shareholders’

meeting to vote accordingly.

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UKLA Listing Requirements*UKLA Listing Requirements*

Transferability of the Underlying Shares & GDRs: The shares underlying the GDRs as well as GDRs itself must be freely transferable, fully paid and free from any liens & restrictions on transfer.

Free float requirement: 25% of the GDRs must be in public hands. This 25% should not include any investor taking more than 5%.

Admission to trading on a Recognized Stock Exchange.

Market capitalization: The expected aggregate market value of all GDRs to be listed must be at least £700,000. The FSA may modify this rule to admit shares of a lower value if it is satisfied there will be an adequate market for the securities concerned.

Continuing obligations: Various ongoing obligations on the part of issuing company include:

Publication of an annual financial report within four months of its year end.

Publication of price sensitive information to enable investors to trade in a knowledgeable manner.

* These are specifically applicable to companies seeking to list its GDRs on LSE

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Contents of ProspectusContents of Prospectus

A prospectus is the company’s information and sales document which enables

market participants to create opinions and decide whether to participate in the

offering.

A DR prospectus must include the necessary information that enables investors to

make an informed assessment of

the assets and liabilities, financial position, profits and losses and prospects of

the Company and,

the rights attached to the DRs.

An operating and financial review, audited financial information for the last three

financial years or such shorter period as the Company has been in operation. In case

the prospectus is more than nine months after the end of last financial year,

unaudited half year accounts will also be included.

The prospectus also requires details of any material contracts.

Prospectus should also include a summary describing the Company that includes any

risks associated with investing in the Company.

* The above provisions pertain to GDR listing on LSE

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DR Capital RaisingDR Capital Raising

Capital raisings globally were down in the first half of 2008 as over 177 deals were postponed, due to market conditions, according to E&Y.

In the DR sphere, the first six months of the year saw 34 initial and follow-on DR offerings raising nearly $9.2 billion.

Majority of the DRs issued during H1-2008 were listed on NYSE and LSE accounting for around 45% and 40% respectively.

Annual DR Capital Raising(Primary & Follow-on Offerings; $bn)

DR Capital Raising(By Exchange; H1-2008; $mn)

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Top 5 DR Capital Raising in H1-2008Top 5 DR Capital Raising in H1-2008

Barclays Bank came out with a follow-on offering of $2.65 billion in April 2008

recording the largest amount raised worldwide in the H1-2008

From the Gulf region, GIH came out with the largest DR offering ever from the Middle

East raising $1.15 billion in May 2008. This was also the first DR program from

Kuwait.

Issuer Country Exchange Date Value

($ mn)IPO or

Secondary Offering

Barclays Bank plc U.K. NYSE 11-Apr-08 2,650 Sec

Global Investment House Kuwait LSE 21-May-08 1,150 IPO

Commercial Bank of Qatar Qatar LSE 26-Jun-08 691 IPO

National Bank of Greece Greece NYSE 06-Jun-08 625 Sec

GlobalTrans Investment PLC Russia LSE 08-May-08 494 IPO

Top 5 DR Capital Raising (H1-2008)

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Value of Outstanding DRsValue of Outstanding DRs

The total value of investment in DRs increased more than 35% year-on-year and exceeded $1.8

trillion at the end of the first quarter of 2008, an all-time high.

Investment in U.S.-listed DRs totaled more than $1.2 trillion on March 31, 2008, a jump of 36% from

the same time last year.

In terms of region, Western Europe companies accounted for the largest share of DR value

outstanding (~39%).

Value of Outstanding DRs – By Market(As on Mar 31, 2008; $bn)

Value of Outstanding DRs – By Region(As on Mar 31, 2008; $bn)

* DR value outstanding is defined as DRs outstanding multiplied by DR price

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DR Trading ValueDR Trading Value

Over $2.4 trillion of DRs traded on U.S. and non-U.S. markets and exchanges during H1-2008, up 85% year-on-year, setting a new record.

The major U.S. exchanges (NYSE, NASDAQ and AMEX) were the largest markets for DR trading, comprising 86% of all DR trading value worldwide.

China, representing a 253% growth from mid-year 2007, stood as the top-most country with $530 billion in DR trading value.

China, Brazil and Russia, together, accounted for over 50% of total DR trading value in the first half of 2008.

DR Trading Value(By Exchange or Market; H1-2008; $bn)

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GlossaryGlossary

Block ListingBlock Listing - The number of shares “listed” when the GDRs are admitted to the

LSE is the maximum number that can be issued without approval and publication of

another prospectus.

Road ShowRoad Show – A series of meetings with potential investors and brokers, conducted

by a company and its underwriter, prior to a securities offering. It is intended to

create interest in the securities. Also known as a "dog and pony show“.

Pilot FishingPilot Fishing – A type of pre-marketing of an offering that involves testing investor

sentiment to receive feedback on how the market may respond to an issue

Green-Shoe/StabilizationGreen-Shoe/Stabilization - A provision contained in an underwriting

agreement that gives the underwriter the right to sell investors more shares than

originally planned by the issuer. This would normally be done if the demand for a

security issue proves higher than expected. Legally referred to as an over-allotment

option.

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