Q We are in the middle of our international IPO and our underwriters are urging us to conclude an agreement with one of the depositary banks. This is a completely new area for us. Could you please highlight a few key points we should consider?
A There are four very capable depositary banks in the market – the Bank of New York Mellon, Citibank, Deutsche Bank and JPMorgan – and each deserves due consideration. Best market practice would be to conduct a formal request for proposal (RFP) process. However, in the run-up to an IPO, where time may be limited, consideration should be given to the following points at least:
Service quality: Look closely at shareholder servicing capabilities and any country-specific considerations that may require extraordinary processing. Address the ability and experience of the bank in managing corporate actions and IR support services, such as peer group analysis and shareholder targeting. Evaluate the qualifications of the team that will manage the program, and seek references from your peers. A service level agreement should be put in place to safeguard issuer and shareholder service quality.
Financial proposal: The depositary receipt program is investor-paid and the bank collects fees from holders through various mechanisms. In turn, the bank may contribute financially toward your IR program and other program-related costs such as listing fees and distribution of company materials to your shareholders. Determine which fees are charged (dividend fees, service fees, and so on) and under what circumstances, and check that the proposed fee levels do not exceed established market practice. Ensure that you are comparing the bids on a like-for-like basis in terms of fees to be charged and actual hard-dollar contributions offered to you.
Terms and conditions: The commercial terms between issuer and depositary are governed by a fee agreement, which sets out the financial terms, duration of the contract (typically five years), proposed investor fees (both ongoing and for corporate action processing) and contract termination clauses. Make sure the financial implications of early program termination are clear and also look to build in ‘what if’ provisions (secondary offerings, ratio changes, and so on) where you may benefit should the program revenue dynamics change.
The relationship between issuer and depositary bank is long term and affects the treatment of your shareholders – so make sure you have as many data-points as possible at the outset to create a transparent and equitable agreement for all parties.
