American Depositary Receipts
(ADRs): A Primer
Introduction
An American Depositary Receipt (ADR) is
a negotiable instrument issued by a
depositary bank that evidences ownership
of shares in a corporation organized outside
the U.S. Each ADR represents a specific
number of underlying ordinary shares in the
non-U.S. company, on deposit with a
custodian in the applicable home market.
ADRs are generally treated as U.S. domestic
securities. They are quoted and traded in
USD and are subject to the trading and
settlement procedures of the market in
which they trade. ADR trading venues
include the U.S. national stock exchanges
(New York Stock Exchange – NYSE; Nasdaq
Stock Market – Nasdaq; NYSE American
(formerly AMEX)) and the U.S. OTC (over-
the- counter) market.
ADR programs, or “facilities,” are typically
classified under three levels:
1.
When an ADR program is established
based on existing ordinary shares and
traded in the U.S. OTC market, it is
categorized as a “Level I” ADR facility.
2.
When such a program is listed on one of
the aforementioned U.S. stock
exchanges, with no corresponding
offering of newly issued shares or ADRs,
it is identified as a “Level II” ADR facility.
3.
When an ADR program facilitates a
capital raising, accommodating newly
issued ordinary shares, and is listed on a
U.S. national stock exchange, it is
identified as a “Level III” ADR facility.
Regardless of its classification, a
well-orchestrated ADR program can
contribute to strong demand for a
company’s shares. A successful ADR
program can also reflect positively on the
company not only in the minds of
investors and analysts, but also
customers, vendors, regulators, employees
and the communities in which the company
operates.
An ADR program can also function as a
corporate governance seal of approval.
More specifically, meeting the rigorous and
widely accepted listing standards of a U.S.
exchange can evidence the sufficiency of a
non-U.S. company’s reporting and
accounting practices.
ADRs are typically the most readily available
and familiar instrument to most U.S.
investors for investment in specific overseas
companies, while still benefiting from the
general protection and transparency
facilitated by U.S. securities regulation.
Key Roles and Responsibilities
In order to establish an ADR program, the
issuer first appoints a team of advisors that
typically includes investment bankers
(except for Level I), lawyers and accountants.
The issuer also selects a depositary bank to
manage the implementation of the program.
The depositary bank also performs the
critical role of liaison among the various
parties to the transaction and will remain
integral to the long-term development of the
ADR program.
Generally, the functions of the lawyers and
accountants will eventually transition to
periodic reporting and general legal matters.
Investment bankers will typically not be
involved with the ongoing management of
an ADR program as well; however, the
program will become an important
consideration for investment bankers if the
issuer contemplates going to the capital
markets in the future. The depositary bank is
the only party to ADR transactions that is
engaged on an end-to-end basis.
See the diagram on the reverse side for more
detailed information.
Issuer Services
ADR Primary Benefits
Issuers
Investors
Brokers
•
Make ADRs available to investors
Depositary
•
Provide input on ADR facility structure
•
Appoint local custodian
•
Draft Deposit Agreement and Form
•
F-6 registration statement
•
Assist with ADR registration
requirements
•
Coordinate with lawyers and
investment bankers to ensure that all
implementation steps are completed
•
Prepare and issue ADRs at closing
•
Announce ADR program establishment
to the investor community
•
Facilitate ongoing issuance and
cancellation of ADRs
•
Assist the company on investor
relations strategy
Custodian
•
Act as local market agent for the
depositary
•
Receive and hold deposits of underlying
ordinary shares for ADR issuances
Issuer
•
Determine financial objectives
•
Appoint depositary bank, lawyers,
investment bank and accountants
•
Determine ADR facility “level”
•
Obtain approvals from board of directors,
shareholders and regulators, as needed
•
Provide financial information to
accountants and investment bankers
•
Develop investor relations strategy
Investment Bankers
•
Lead underwriting process
•
Establish syndicate of participating banks
•
Advise on capital structure
•
Advise on ADR facility structure
•
Conduct due diligence
•
Draft prospectus
•
Obtain securities codes, such as
CUSIP number
•
Obtain DTC, Euroclear and
Clearstream eligibility, as needed
•
Coordinate road show
•
Organize book-building and line up
market makers
•
Price and launch ADR offering
Lawyers
•
Advise on ADR facility (legal) structure
•
Negotiate Deposit Agreement
•
Prepare appropriate registration
statements or establish exemptions
with SEC, as applicable
•
Prepare listing agreements for U.S.
exchanges (Level II and Level III ADR
facilities)
•
Assist in the drafting of offering
circular/prospectus
Accountants
Prepare financial statements in
accordance with (or reconciled to) U.S.
Generally Accepted Accounting Principles
(U.S. GAAP) or International Financial
Reporting Standards (IFRS) for Securities
Act – registered securities (Level II and
Level III DR facilities).
Contact Us
Asia North, Australia and Japan
Adrian Nye
+852-2868-7960
Asia South
Ernesto Sarria
+65-6657-5927
ernesto.sarria@citi.com
Europe
Sean Ruby
+44-20-7500-2831
sean.rub[email protected]
UK, Middle East and Africa
Ayden Dagg
+44-20-7500-5709
Latin America
Rafael Cardenas
+1-813-604-1413
rafael.cardenas@citi.com
North America
Andrew Leamon
+1-212-816-3829
andrew.leamo[email protected]om
Issuer Services
https://www.citigroup.com/global/businesses/services/securities-services
© 2024 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.
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Brokers
Investment
Bankers
Depositary
Issuer
Lawyers
Custodian
Accountants
