Mexican cement company Pemexs $70 million listing of
global depositary notes (GDNs) on the Irish Stock Exchange
(ISE) last month represented the first-ever listing of GDNs on
a regulated exchange.
It opens up a new way of providing emerging markets
sovereigns and quasi-sovereign corporates local offerings
with greater liquidity and distribution, improving pricing in
GDNs emulate the terms, including interest rate, maturity
date, credit ratings, and law of the local currency-denominated
bonds, but trade, settle, and pay interest and principal in US
They allow offshore investors to trade directly with local
investors by being exchanged for the respective underlying
bonds and vice versa at any time via a local depositary
Pemexs landmark listing of GDNs on the
ISEs global exchange market expanded the investor base to
include pension and Ucits III funds, which have restrictions on
the amount of unlisted securities they can hold.
We already had several emails from different arrangers
in New York and they are all interested in replicating this
structure, said Maurizio Pastore, listing executive (debt
securities) at the Irish Stock Exchange.
Citigroup had previously worked on an unlisted GDN issue for
the Republic of Peru, which was touted as a success, and before
long word got out about the structure to institutional
investors and other fund managers. However these investors
faced a problem they have limits on the amount of
unlisted securities they can hold.
Ucits III-regulated funds have certain thresholds as to what
how many unlisted securities they can hold. Pension funds
usually cant invest in unlisted securities at all.
One source told IFLR that certain US and Canadian
pension funds in particular were interested in getting exposure
to GDNs and approached Citi to see if it could come up with a
way to list these types of securities.
Maurizio Pastore, listing executive (debt securities) at the
Irish Stock Exchange, said Citi contacted him and put forward
the proposition of listing the Pemex GDNs on the Irish global
However a lot of thought needed to go into the structure of
the issuer and disclosure regime to meet the ISEs listing
To effect a listing, the GDNs would be issued by a separate
entity, Citigroup NA (New York).
The ISE received the local offering memorandum from Pemex,
which had been reviewed and approved by the Mexican financial
The exchange required the local Mexican offering memorandum
to be translated into English and adapted to Rule 144A/Reg S
standards so offshore investors could gain a comfort level with
A GDN wrapper component, which contained all the information
about Citigroup NA as issuer and the GDN offering, served as a
supplement to the offering memorandum, which covered the terms
and conditions of the GDN programme. This language was supplied
by the depositary bank.
Citigroup NA had to agree to stand-by the terms and
conditions of the GDN programme as the GDN issuer, and Pemex
had to agree to stand-by its documentation and disclosure
The depositary bank was only responsible for the terms and
conditions of the GDN information within the supplement.
The ISEs disclosing requirements for a
quasi-sovereign company such as Pemex were strict. We
insisted that the documents they were producing would look as
much like a prospectus as possible. With all the information
about the underlying issuer and securities, plus the
information about the GDN and the GDN issuer, said
Defacto sponsored listing
One of the trickiest issues was devising the structure for
continuing disclosure obligations, said Pastore.
Normally in a purely unsponsored deal, there is no
relationship between the underlying and the depositary bank.
The depositary bank can in fact independently issue GDN without
the underlyings consent.
Pemex didnt give its consent by contract, but it
agreed that for the GDN to be issued they did see the added
value for enhancing distribution for their securities,
Pemex also agreed to provide the financial information, and
also the entire offering memorandum about their issuance and
This is a complete novelty, said Pastore.
We call it a defacto sponsored listing, because
an investor will have all the information available in the
document. That also gave us the comfort to list a product like
So for example if Pemex had its credit rating changed or
other material event occurred to its securities it would have
to communicate it to their bondholders, Citis depositary
bank being one. Citi agreed to inform the ISE with an
announcement about any such changes for the ISE to disseminate
to the market.
Pastore added that the ISE gained extra comfort from the
fact that Pemex already had securities approved by the US
Securities and Exchange Commission, and an MTN programme on the
Luxembourg Stock Exchange.
The Pemex GDN listing was a hit with investors, and
was one and a half times oversubscribed. Pastore said there is
a lot of interest in this structure for emerging market
sovereigns in particular.
However he isnt sure whether GDNs are right for all
companies that dont have the backing of a sovereign or
arent guaranteed by a state controlled entity.
The Pemex listing was a perfect scenario, but if other
companies dont have the same degree of publicity and
dont have financial information approved by a regulatory
body here in Europe or the US, Im not 100% sure that the
listing would happen, he said.