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Cross-Border Trends and Solutions in Issuer Services . Istanbul, Turkey 18th October 2008.

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market update different phases of the liquidity credit crisis

After a five year period of increased leverage in the financial system, sub prime distress acted as a catalyst for a broader systemic crisis. We are now in a third phase of massive deleveraging within the banking system.

Market Update: Different Phases of The Liquidity/Credit Crisis


Increase in Leverage in Financial System 2002 - 2007

Phase 1

Initiation - Sub-prime and

Structured Products Crisis

Phase 2

Illiquidity and Counterparty Risk

Phase 3

Government Intervention

Phase 4

Liquidation / Deleveraging

Balance Sheet Reduction

Capital Raising

Source: Citi.

enormous liquidity has already been drained from the system

Availability of liquidity has not only been impacted by absolute writedowns by banks and reductions in regulatory capital, but also by the associated deleveraging impact.

Enormous Liquidity Has Already Been Drained From The System

Estimated Reduction in Credit Availability

Writedowns / De-leveraging from Banks and Brokers

$5,000 BillionBanks: ~20x LeverageBrokers: ~30x Leverage

U.S. Commercial Paper Market

$500+ Billion

Structured Finance / ARS Market

$1,000+ Billion



Over $6.5 Trillion of Liquidity Drainedfrom System to Date and More to Come

Source: Bloomberg.

funding options remain opportunistic and prepared

In such an environment of heightened competition for liquidity, corporates need to think outside the box and be prepared to act opportunistically. Corporates will need to take advantage of ad hoc issuance windows and access markets several times for smaller amounts during this period of financial distress.

Funding Options - Remain Opportunistic and Prepared

Selected Alternative

Sources of Liquidity

Fixed Income


Corporate / Strategic


  • Sukuk
  • Eurobond
  • Secured Lending
  • US 144A
  • US Private Placement
  • Samurai/EuroYen
  • Schuldschein
  • Niche Currencies
  • Primary Capital raising
  • Capital Raised via Monetisation of non-strategic stakes in public companies
  • Both options can be structured in either the public markets or privately-negotiated
  • Common equity and/or derivatives solution are possible structures - DRs
  • Working Capital Management
  • Capital Distribution Policies
    • Dividend Policy and Payment Schedule
    • Share Repurchase Program
  • Asset Sales
  • Stock-for-stock mergers
what does issuer services cover in general

Issuer Services provides global of corporate trust and agency services.


New York

Hong Kong



What does Issuer Services cover in general ?
  • Issuer Services provides agency and fiduciary services to support the capital market transactions
  • Dedicated operations, transaction, legal and relationship staff in a number of key locations
  • Maintains direct electronic links with all major markets: DTC, Euroclear, Clearstream
  • Acts as a depositary bank for DR programmes and common depository for debt issuance
  • Supports assets under custody in excess of $4 trillion in debt and equity
  • Services offered to more than 2,000 corporate, sovereign and SPV clients around the globe


London: EMEA (Europe, Middle East and Africa)

Dubai: Middle East

New York: North and Latin America

Singapore & Hong Kong: Asia and Australasia

issuer services supports a wide range of financing activities

A broad range of business drivers have resulted in a variety of activities and services.

Issuer Services supports a wide range of financing activities

Business Drivers



  • Bonds
  • Medium Term Notes
  • Commercial Paper

Administrative, fiduciary / fiscal services associated with the issuance of debt as well as acting as common depositary

Straight Debt

Above roles as well as services specifically related to the issuance of structured debt, including securing of assets, asset and cash flows analysis

  • ABS
  • MBS
  • Covered Bonds

Structured Debt

  • Projects of all nature in terms of:
    • Domicile
    • Industry
    • Assets

Provide services related to the servicing and securing of assets and cash flows associated with security packages for project finance transactions

Project Finance

  • Mergers
  • Takeovers
  • Spin-offs

Manages the tender and exchange process for large, complex M&A transactions


  • Loan Facilities
  • Loan Administration

Act as a Loan Facility Agent

Administers clients investments in loans


  • Sukuk
  • Shari’a Compliant Financing

Delegate to the Trustee, Transaction Administrator, Investment Agent, Paying Agent, Custodian, Security Agent

Islamic Finance

  • ADRs & GDRs
  • Local DRs

Depositary Bank, Paying Agent

Depository Receipts

overview depositary products solutions

A Depositary Receipt (DR) is a negotiable instrument issued by a depositary bank evidencing ownership of shares in a foreign corporation.

Overview – Depositary Products / Solutions
  • American Depositary Receipts (ADRs) – since 1928
    • An ADR represents ownership in the shares of a foreign company trading on US financial markets. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border transactions
  • Global Depositary Receipts (GDRs) – since 1990
    • GDRs are DRs offered to investors in two or more markets outside the issuer’s home country, usually pursuant to Rule 144A and Regulation S under the Securities Act of 1933
  • Local Depositary Receipts – since July 2008
    • LDR programs extend the traditional ADR concept to markets globally such as Hong Kong Depositary Receipts (HDRs)
  • Global Depositary Notes (GDNs) - since 2007
    • GDNs offer an alternative way for international investors to invest in a domestic bond; this product is particularly attractive for countries with currencies that do not settle through the International Clearing Settlement Depositories
depositary receipts operational flows

The core operational services performed are the issuance/cancellation of the DRs, custody of the issuer’s ordinary shares, processing of dividend payments and other corporate actions, and dissemination of information to the DR holders.

Depositary Receipts – Operational Flows
depositary receipts looking forward

Looking forward, the Depositary Receipt space may be divided into two categories: Conventional Depositary Receipts and Local Depositary Receipts.

Depositary Receipts – Looking Forward

Source: Citi DR Universal Issuance Guide

depositary receipts trends

The scope and depth of the Depositary Receipt (DR) space has grown significantly over the part several years.

Depositary Receipts – Trends
  • An increasing number of corporations have sought to capitalize on the benefits of a DR program and a growing number of investors have embraced the DR product as a means to invest globally
    • The market value of outstanding DRs is approximately US$1.8 trillion (as of 1H’08), up 38% year-on-year-2007 and 50% year-on-year-2006
    • DR trading value during 1H’08 was approximately US$2.34 trillion, up 85% year-on-year-2007 and 157%-year-on-year 2006
    • In 2007, capital in the amount of US$54.8 billion was raised in DR form, up 32% from 2006 and 68% from 2005
    • 2,093 DR programs (among 76 countries) currently exist (as of 1H’08), up 4% year-on-year-2007 and 8% year-on-year-2006
  • Several stock exchanges are in the process of replicating the models for DR issuance and trading set forth in the U.S. (American Depositary Receipts—ADRs) and U.K. (Global Depositary Receipts—GDRs) in order to provide the DR solution to its investor base
    • Local Depositary Receipt programs

Source: Citi DR Universal Issuance Guide

conventional depositary receipts capital raising

A once ADR-centric solution has become one of virtually equal ADR and GDR issuance.

Conventional Depositary Receipts – Capital Raising
  • Why did this trend occur?
    • The general rise in prosperity of non-U.S. markets since 2001
    • Sarbanes-Oxley Act (2002)
      • More cumbersome and less cost-effective regulatory requirements for U.S.-listed companies have discouraged ADR issuance
        • GDRs have presented a more efficient and less expensive alternative to U.S.-listed DR programs
    • U.S. recession (2001-02)
      • U.S. investor wallet size had diminished

1. Total Capital Raised in Conventional DR Form (Right)

(USD billions)

2. % Value of Capital Raised in Conventional DR Component (Left)

Source: Citi DR Universal Issuance Guide

depositary receipts trading value

By year-end 2007, 5% of the total value of share trading on the DR exchanges was transacted in DRs.

Depositary Receipts – Trading Value
  • What does this trend signify?
    • A general increase in the value of the DR asset class, supported by growing demand among asset managers for international investment
    • Increased use of DRs as a preferred vehicle for cross-border transacting
    • Greater acceptance among asset managers of the trading properties of DRs
    • The relative deepening of the DR market versus the broader market

Value of Share Trading

(USD trillions)

CAGR = 23%

CAGR = 37%

Source: Citi DR Universal Issuance Guide, The World Federation of Exchanges

depositary receipts capital raising

By year-end 2007, 20% of all equity capital raising was transacted in DR form.

Depositary Receipts – Capital Raising
  • What does this trend signify?
    • Further evidence of the robust growth of global issuers
    • Greater relative growth of non-U.S. and non-U.K companies versus U.S. and U.K. companies, respectively
      • The Asia Pacific, Latin America and CEEMA regions led the way
    • Augmented demand among asset managers for global investment vehicles

Capital Raising

(USD billions)

CAGR = 18%

CAGR = 86%

Source: Citi DR Universal Issuance Guide, The World Federation of Exchanges

local depositary receipts

The success of the DR model has led several other stock exchanges & local regulatory bodies to either implement or take steps to implement proprietary platforms for DR issuance and trading.

Local Depositary Receipts
  • This imminent evolution of the DR space coincides with the emergence and/or deepening of liquidity pools in regions such as MENA
    • The engagement of a depositary bank is a necessity
      • Depositary banks provide stock exchanges with the expertise, experience, infrastructural guidance and relationships (issuers and investors) required to operate successfully in the DR space
    • Global issuers are keen to leverage the attributes of a Local DR program
      • Facilitate access to fresh liquidity pools for the purpose of executing a capital raise
      • Function as a vehicle for establishing and/or enhancing corporate visibility within a new marketplace
    • The advent of Local DRs broadens the universe of solutions available to local asset managers and other investors (including retail investors)
      • Enable portfolio diversification
      • Provide a more cost-effective and efficient manner in which to invest globally
unsponsored local depositary receipts

Stock exchanges can establish DR programs without direct involvement of the company.

Unsponsored Local Depositary Receipts
  • Unsponsored DR programs are set up without the company’s participation or even its consent
  • Unsponsored DR programs have no regulatory reporting requirements and are issued in accordance with market demand
  • Unsponsored shares are typically trade over-the-counter (OTC), but can also be traded on an exchange
    • The respective exchange and/or local governing body would establish the regulatory framework
    • The depositary implements the DR program based on the regulations
  • The depositary will provide most of the corporate action services, such as name change, dividend distributions, etc., except for proxy actions or AGM/EGM

Sample Citi Unsponsored DR Programs

Source: Citi DR Universal Issuance Guide

defining characteristics of global depositary notes

A Global Depositary Note (GDN) is essentially a debt security version of the Depositary Receipt (DR) product.

Defining Characteristics of Global Depositary Notes
  • Global Depositary Notes (GDNs)
    • A negotiable instrument issued by a depositary bank evidencing ownership of debt securities (notes) of a foreign issuer
      • The underlying instrument is the local currency denominated note
      • Represent local currency denominated notes replicated in U.S. dollars or another currency
      • Trade, settle and make payment of interest and principal in U.S. dollars or another currency
      • Assigned a dedicated debt CUSIP
      • Can be incorporated as a component of a new issue or an enhancement to an existing one
      • Generally provide the opportunity to exchange the GDNs for underlying notes and vice versa (“issuance and cancellation”)
      • Governed by U.S. law
      • Typically Rule 144A & Regulation S bifurcated
      • Local market nature of the product can serve to eliminate requirement of cross-default
        • Cross-default is prevalent with U.S. dollar denominated global debt
participants in gdn issuance

GDNs and DRs represent flexible financing tools through which various debt instruments can be wrapped

Participants in GDN Issuance


  • The issuer and underwriter negotiate the terms of the local currency denominated note offering. The underwriter leads and coordinates the origination process
  • Based on investor subscrip!ion to the actual local currency denominated note offering, distribution is made to local investors
  • Based on investor subscrip!ion to the GDN tranche of the note offering, a matching amount of actual local currency denominated notes are deposited with the custodian
  • The depositary issues GDNs versus the local currency denominated notes held under custody for distribution to investors


















GDN Investors




understanding islamic debt securities

Sukuk Holders(Investors)

2. Issues sukuk to investors5. Periodic coupon payments

3. Sukuk proceeds

1. Sale of assets/title

4. Lease of assets

Special Purpose Vehicle (SPV)

Original Seller or Lessee(Sovereign/Corporate)


5. Periodic rentals and capital payments

3. Sukuk proceeds

Understanding Islamic Debt Securities


Geographic Distribution

Total Issuance in Top Countries, 2000-2007(US$bn)

  • What is a sukuk?
    • Debt-based instruments or financial certificates that are Shariah compliant
    • Comply with Shari’a laws that prohibit the collection of interest by deriving returns from underlying physical assets
    • Issued by governments, banks, and corporate entities
  • Structure
    • 14 different classes of Islamic debt securities
    • Common types:
      • Sukuk al-Ijara
      • Sukuk al-Musharaka
      • Sukuk al-Murabahah

Total Value of Outstanding Sukuk as of Dec. 2007 = $82.7 bn

Sukuk al-Ijara Structure

Source: International Islamic Financial Market

shari a compliant depositary receipts

Local DR platforms can provide the opportunity to capture additional capital flows through offering Shari'a compliant DRs.

Shari'a Compliant Depositary Receipts
  • The universe of global companies that are considered Shari'a compliant is extensive
    • Most established fund companies now offer Shari'a compliant product
    • Many exchanges have developed Shari'a compliant indices
  • DRs enable investors in applicable markets to invest internationally in Shari'a compliant companies
    • Many companies that have DR programs sponsored by Citi are considered Shari'a compliant (see examples below)
      • These companies are currently components of Shari'a compliant funds or indeces

Source: Citi DR Universal Issuance Guide

the benefits of a global depository sukuk gds issuance

A similar structure could be used to wrap a Sukuk into a DR programme

Obligor as




The Benefits of a Global Depository Sukuk (GDS) Issuance?

GDS benefits to the markets

  • Increases international awareness of and focus on local market and encourages other issuers in that market to seek listings
  • International listings engender improved perception of quality within the market
  • Creates view that local market is flexible and forward looking

Obligor leases back assets as Lessee





Purchase Price

Sukuk Certificates

Sukuk Certificates





GDS Investors



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