DR Capital Raising in 2012 Starts with Full Pipeline
Platt, Gordon, Global Finance
Corporate Finance Focus
Depositary receipt investors ipushed trading to a record high last year, demonstrating the continued popularity of DRs, despite challenging market conditions. While the amount of capital raised by corporate issuers was down from 2010, the year ahead looks promising, bankers say.
"The DR pipeline for capital raising is the best we have seen in five years," says Dennis Bon, global head of depositary receipts at J.P. Morgan. "The only question is the market environment. Issuers will be waiting to take advantage of periods of calm."
Despite global economic concerns, 54 issuers raised more than $14 billion via DR IPO or follow-on offerings in the first 11 months of 2011, according to J.P. Morgan. That was down from 93 issuers that raised a total of $20.3 billion in the same period a year earlier.
"As the pipeline is encouraging, it looks like 2012 should be a good year, if the larger transactions are able to close," says VikasTaimni, global product manager of depositary receipts at J.P. Morgan. A steady increase in DR capital raised from emerging markets is expected, and the Asia-Pacific region likely will be the most active in terms of number of IPO deals, he says.
LONDON LEADS IN IPOS
London overtook the US as the preferred location for DR IPO capital raising and was the source of 46% of the total in the first 1 1 months of 201 1, followed by New York at 29%, and Luxembourg at 9%, according to J.P Morgan.
London's lead was due in part to the fact that Russian issuers prefer to list their EPOs there, and these issues tend to be larger than those of Chinese firms that opt for New York, Taimni says But New York remained the dominant trading center for DRs, with about two-thirds of trading volume and value in the first months of last year. Overall DR trading volume worldwide was up 16% from the same period a year earlier.
"Market vohtìity was a big driver of volume, as was the quality of the new programs, which created investor demand," Bon says. J.P. Morgan launched two groundbreaking programs on the Hong Kong Stock Exchange in 2011. In April, SBI Holdings of Japan raised $207 million in the first-ever capital raising via Hong Kong DRs. In December 201 1, luxury apparel designer Coach saw the first Hong Kong DR program for a US-registered entity.
"It's encouraging that local DRs in markets such as Hong Kong and Brazil continued to expand in 2011, while earlystage markets in the Middle East, Nigeria and Mongolia prepared for expected growth in 2012," Bon says.
MORE PROGRAMS TO COME
Michael Cole-Fontayn, CEO of BNY Mellon 's DR business, says DR trading passed $3.5 trillion in 201 1 . "There were many more DR programs outstanding, including unsponsored DRs, which is what investors were asking for, as they seek greater diversification," he says.
The US Securities and Exchange Commission's rule revision in October 2008, simplifying the formation and trading of over-the-counter DRs of non-US publicly traded companies, has resulted in more than 1,000 new unsponsored DRs from 35 countries coming to market. …