DR Trading Sets Record in First Half as BRIC Countries Raise Most Capital

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Corporate Finance Focus

Depositary receipt trading worldwide rose 8.3% to more than 78 billion DRs in the first half of this year and was valued at a record $1.84 trillion, according to BNY Mellon. Most of the trading took place on the New York Stock Exchange and Nasdaq, as US investors sought to take advantage of faster economic growth in foreign markets. US-listed programs accounted for nearly 90% of global DR trading value in the first six months of 2010.

India and China together accounted for 34 of the 44 new primary and follow-on DR offerings in the first half, which raised more than $4.1 billion. "The performance of China's economy is a major driver of world markets at the moment," says Michael Cole-Fontayn, chief executive of BNY Mêlions depositary receipts business. "The Chinese government is keen to emphasize the quality of its economic growth and not just the overall rate of growth," he says.

"The return to growth of the Russian economy has been reflected in the performance of some of the resource companies," Cole-Fontayn says. Of the top 10 most actively traded DR programs on the London Stock Exchange in the first half of this year, nine were for companies based in Russia. The value of DRs traded on the LSE rose 56% in the first half of 2010, compared with the same period a year earlier, and totaled $152 billion.

The most actively traded US-listed DRs in the first half included Brazil-based Vale and Petrobras. Brazil-based builder and property developer Gaftsa, Kazakhstan-based Alliance Bank and India-based Essar Oil were the top three companies raising capital in the DR markets in the six months through June.

Most of the new issues this year were expected to come from the BRÏC countries-Brazil, Russia, india and China-and that scenario played out in the first half. "The market has seen a significant increase in trading value and volume, as well as continued growth in new programs," Cole-Fontayn says. "Much of this was spurred by high-growth markets and their attractive growth prospects."

BNY Mellon has been instrumental in several innovations in the DR market this year. It was structural adviser in June to UK-based Standard Chartered, which became the first company to establish an Indian DR program and the first foreign company to list on India's domestic securities markets. "The Indian regulatory environment is complex and challenging to navigate," Cole-Fontayn says. "There are wrinkles in the DR structure that are unique to the Indian market. Hopefully, we have eased the way for other global companies to have a smoother route to the market."

BNY Mellon also played an important role in the introduction in July of the first actively managed international exchange-traded fund. The BNY Mellon Classic ADR Index is the fund's primary benchmark. The new ETF, which is sponsored by AdvisorShares Investments, based in Maryland, trades on the New York Stock Exchange. It offers US investors who are looking to diversify their portfolios a more efficient mechanism to invest globally, Cole-Fontayn says.

Revival Is Mainly In Asia

Akbar Poonawala, managing director and head of global equity services at Deutsche Bank, says that although there has been a good uptick in DR trading and issuance, it is mostly limited to a few countries. …