Citi on the Joy of Depositary Receipts
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Citigroup (NYSE: C) discusses depositary receipts (foreign stocks traded on local exchanges) and the role DRs play in global investing. As one of the world's four depositary banks that manage the 3,600+ DRs around the globe, Citigroup accounts for over 750 DR programs (with a market value of at least USD 100 billion) in 55 countries.
Nancy Lissemore is the Global Head of the Depositary Receipt business and a managing director at Citi. She also sits on the NYSE AMEX Committee on Securities, and serves on the Board of Directors of Citi Trust-Delaware. In 1991 she joined Citi, and has worked with DRs since 1994. Prior to heading the DR business, Nancy was director of the Global Structuring team, where she assisted in structuring new DR facilities. Her earlier work with Citi involved developing the Brady Bonds which restructured the Latin American debt crisis in the late 1980s and early 1990s. Prior to joining Citi she practiced labor and corporate law and obtained her undergraduate degree from Rutgers College School of Business and a JD from Rutgers Law School with a concentration in corporate law.
Nick Slepko: You’ve been involved with DRs since 1994, so you’ve been with them through boom and bust.
Nancy Lissemore: Yes, but I wouldn’t say there was ever a bust. In the early ‘90s it was a time of great growth and innovation for the DR programs and DR products. This was after the SEC implemented Reg S and Rule 144A which allowed companies to raise capital under an exemption to registration. So, this is where the GDRs, global depositary receipts, came from – which you often see listed in London or Luxembourg. Citi did the first GDR program for Samsung in the early ‘90s. There were many, many programs that copied that structure, the bifurcated structure – one tranche done under Reg S, and one tranche, available to QIBs [qualified institutional buyers – the $100 million plus folks] under Rule 144A. Also, during the early and mid-‘90s governments were doing a lot of privatization, and they were utilizing the DR structure.
The product really interested me because of its globality, its strategic importance to the capital markets, the opportunity to work with large international corporates and governments, and of course the securities law aspects (given my background in law).
That’s how I ended up here, and why it continues to fascinate me.
Slepko: Of the four depositary banks, where does Citi rank?
Lissemore: There are different ways to measure market share. We don’t look at number of programs as a market share because it is really not a telling figure. You can open a DR program that has absolutely no DRs outstanding. So, the number of programs is not really a measurement of success.
We believe you should look at a program’s trading volumes. If you look at the average trading volumes of exchange-listed DRs (which are typically larger in size), then Citi has the leading edge of DRs traded per program.
We also look at capital-raising in the form of DRs. In 2011, we were at the forefront and had the number one market share in IPOs globally. We had the number one market share in IPOs in Asia, and the number one market share in overall DR capital raised in Asia. We also manage the most liquid ADR program (TSMC [Taiwan Semiconductor]), and the most liquid GDR program (Hon Hai) in the region based on 2011 trading volumes.
Slepko: Is there a particular area of depositary receipts that Citi excels at compared to others?
Lissemore: We excel at working with issuers to build liquidity in their listed programs. We also have the dominant market position in Asia.
Slepko: Why have you been so successful in Asia?
Lissemore: Citi’s global footprint and our existing market franchise in Asia have led to our incredible success. Some of those markets opened up to DRs in the early to mid-’90s like Taiwan, Korea, and India. They are regulated markets, so we relied heavily on our local presence and knowledge of the local securities market and were able early on to obtain market share and have successfully retained that market share.
Slepko: How significant is the DR business for Citi?
Lissemore: We don’t publish the numbers publically, but the DR business is core and an important business for Citi. It’s a global business that fits well within our network and strategy around clients. This is a client-centric organization, and DRs are one of the ways we serve our clients.
Slepko: Are DRs like milk and it gets customers through the door, or is it a specialty product that clients take an interest in once they have connected with Citi for other reasons?
Lissemore: It depends. If the company is doing a capital-raising or an IPO, they are being advised by an investment bank and the investment bank is going to advise them on whether the offering should include a DR tranche. So a DR could become a core part of their strategy if a company is doing an IPO…Other times, it is Citibank reaching out in an advisory capacity and saying, “We believe you are the type of company that should have a DR program.” They are already a public company. They already have a large market cap. They have a good relationship with Citi…We advise them that opening a DR program would benefit them by broadening their shareholder base.
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Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Citigroup Inc. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.