Depository Receipts Bounce Back in 2014

After an anemic 2013 first half-performance, the depository receipt market is growing significantly.

By June 30, the DR market witnessed 41 capital market transactions that raised $9.1 billion, which is slightly double 2013’s transaction volume and approximately 150% more raised capital, according to figures published in BNY Mellon’s mid-year Depository Receipts 2014 update.

“Last year we saw the green shoots and now we are seeing some growth,” says Anthony Moro, head of EMEA for BNY Mellon’s depository receipts business.

He attributes the upswing to the financial markets responding to the Federal Reserve’s tapering of its quantitative easing policy with “more of a whimper than a bang.”

“That drove investors’ concerns for the past year and harmed the green shoots,” Moro adds. “Since then, unemployment rates have fallen and the markets know that interest rates likely will rise in the developed markets.”

He also believes that DR growth will continue for the near term.

“Europe, Asia and, particularly, the emerging markets have not performed as well as the U.S. recently,” Moro explains. “The valuations of the depository receipts are reasonable and they are not an expensive market. I believe the U.S. is getting close to becoming an expensive market, but most of the world is a few years behind the U.S.”

Companies from China lead the pack by raising approximately half the capital in new capital-raising DR programs. Combined with the rest of the Asia-Pacific markets the various DR programs managed to raise more than $5.5 billion in new capital.

The majority of last half’s DR capital raising transactions came from the emerging markets, such as the initial public offerings of Georgia’s TBC Bank, which generated 400 million Georgian lari ($228 million) on the London Stock Exchange.

However, according to BNY Mellon’s Classic ADR Index Series, the depository receipts with the highest growth came from Denmark (25.5%), Israel (25.4%), Indonesia (22.3%), Italy (18.8%) and Norway (14.3%).

From an industry sector perspective, utilities (16% growth), oil & gas (12% growth) and healthcare (11.8% growth) led the way while technology and composites sectors grew 5.2% and 4.5% respectively.