In our prior post, Appointing a Process Agent in Registration Statements Filed with the SEC, we provided an overview of several types of registration statements filed by foreign issuers that require the appointment of an agent for service (a/k/a process agent) and a U.S. Duly Authorized Representative. This post focuses on the registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) Form F-6, which covers the registration of American Depositary Receipts (“ADR”) of foreign issuers.
American Depositary Receipts Overview
The stocks of many foreign companies that trade in the U.S. markets are traded as ADRs. Each ADR represents one or more shares of foreign stock or a fraction of a share. In lieu of owning an ADR, investors may purchase the foreign stock directly, but U.S. investors often find it more convenient to own the ADR. Many U.S. investors have a greater degree of comfort investing in foreign securities based on the disclosure of important business and financial information that is required to be included in the Form F-6 registration statement filed with the SEC. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted to the ratio of the ADRs to foreign company shares.
Many investors typically do not, or cannot for various reasons, invest directly outside of the U.S. and, as a result, purchase ADRs to diversify their portfolios. In addition, purchasing shares in foreign companies through ADRs offers the U.S. investor the benefits of enhanced liquidity and lower costs.
Brief History of ADRs
ADRs were introduced to the financial markets in 1927. J. P. Morgan launched the first ADR program for the U.K.’s Selfridges Provincial Stores Limited (now known as Selfridges plc.), a famous British retailer. Its creation was a response to a law passed in Britain which prohibited British companies from registering shares overseas without a British-based transfer agent and, thus, U.K. shares were not allowed to physically leave the U.K. In April 1990, the SEC adopted Rule 144A, which gave rise to private placement depositary receipts that are available only to qualified institutional buyers (QIBs).
Content of SEC Form F-6 Registration Statement
Under the Securities Act of 1933, as amended (the “1933 Act”), companies issuing securities to investors in the U.S., including foreign issuers, must disclose important financial information through the public registration of the securities.
The 1933 Act, often referred to as the "truth in securities" law, has two basic objectives (i) to require that investors receive financial and other significant information concerning securities being offered for public sale; and (ii) to prohibit deceit, misrepresentations and other fraud in the sale of securities.
The 1933 Act requires issuers to file registration statements with the Commission, setting forth such information, before offering their securities to the public. Generally, the disclosure in the SEC Form F-6 registration will include a prospectus and detailed description of the company’s business, information about the securities being offered, the management of the company and certified financial statements. In addition, the cover page of the SEC Form F-6 must include the exact legal name of the foreign issuer (translated in to English, if applicable), the jurisdiction of incorporation, the name and address of the depositary bank, the name, and address of the agent for service, an election of whether the filing will become effective immediately upon filing with the SEC or on a specific future date and time and the calculation of the registration fee. A copy of the SEC Form F-6 with instructions may be found on the SEC website.
Appointment of Process Agent and U.S. Duly Authorized Representative
As noted above, in addition to the detailed disclosure related to the underlying shares of the foreign private issuer required to be included on the SEC Form F-6, an agent for service in the United States (also known as a process agent) must be named to receive notices and any legal proceedings related to the registration of the ADRs. SEC regulations also require that a U.S. Duly Authorized Representative sign the SEC Form F-6.
In addition, a company can access U.S. markets through a private placement of sponsored depositary receipts. Through the private placement of ADRs, a company can raise capital by placing ADRs with large institutional investors in the United States, avoiding SEC registration and to non-U.S. investors in reliance on Regulation S. Since the filing of the SEC Form F-6 registration statement is not required, the appointment of the process agent would be included only in the Deposit Agreement among the Issuer, depository bank and any other related parties.
The Importance of Choosing a Professional Process Agent
As always, you want to ensure that a professional process agent is named as the agent for service in the U.S. to ensure proper receipt and forwarding of any notices or legal proceeding related to the issuance of the ADRs by the foreign company. (See "Top 5 Criteria for Selecting a Process Agent".) A professional process agent understands the critical timing of delivery of acceptance of the appointment in advance of the filing date with the SEC and will handle all communications promptly and confidentially.