Bric Countries Likely to Lead DR Capital Raising in 2011

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Corporate Finance Focus

Coming off the bailout ot Ireland, and with several other European countries denying they need outside help, the outlook for the financial markets in 2011 is somewhat clouded, but emerging markets will continue to attract investors in the year ahead, according to bankers who specialize in depositary receipts. "The aftershocks of the global financial crisis that hit the world in 2008 make navigating the markets quite a challenge," says Michael Cole-Fontayn, chief executive of BNY Mellon's depositary receipt business. "The outlook is mixed in Western Europe, and coupled with a fairly dull recovery in the US, this means that the focus will continue to be on emerging markets in 2011."

Companies based in Brazil, Russia, India and especially China - the Brie countries - will continue to lead the way in DR capital raising in the year ahead, bankers forecast.

"The higher-growth markets will appeal to investors," ColeFontayn says. "According to the findings of our 6th Global Investor Relations Trends survey, companies will follow the capital and will raise more equity in Asia." Standard Chartered Bank, for example, became the first foreign company to list in India through an issue of Indian depositary receipts last May.

Never More Popular

DR programs have never been more popular with corporate issuers, as well as with investors, Cole-Fontayn says. "The value of DRs increased substantially in 2010, and investors have been rewarded for taking risks in emerging markets," he says. "Those who hesitated have missed some opportunities." While there is a risk that Europe's sovereign debt crisis could spread to Portugal and Spain, the European Central Bank has extended an emergency loan program and is buying bonds of peripheral European economies to keep the crisis contained.

One lesson of the global financial crisis is that markets are correlated, Cole-Fontayn says. "But the G20 [group of 20 leading economies] seem united when they meet at times of crisis," he says. There will be windows of opportunity in 201 1 tor well-prepared issuers to raise capital. Cole-Fontayn says. "We expect an acceleration of European financial institution capital-raising, to get ahead of any potential bailout activity and to prepare for Basel III capital standards," he says.

Meanwhile, India could accelerate its privatization program, and its economy has been surprisingly strong, Cole-Fontayn says. The Russian market is also attractive, he adds. Russian GDR offerings in London recently included a supermarket (St. Petersburgbased O'Key), a technology company ( and a transportation company (Transcontainer, a subsidiary of Russian Railways).

Companies based in China accounted for 34 capital-raisings in the first 11 months of 2010, and Brazil has the most open market of all, Cole-Fontayn says.

$17 Billion of DR Equity

Nancy Lissemore, managing director of depositary receipt services at Citi, says $17 billion of equity capital was raised in DR form globally from 57 IPOs and follow-on issues in the first 11 months of 2010. This was slightly more in dollar terms than in the same period a year earlier, when there were 49 such issues. "We expect continued growth in the number of deals and in the dollar amounts in 2011," Lissemore says. …