While tough market conditions forced several depository receipts (DR) IPO issuers to put off their capital raising plans until 2012, 40 new issuers raised $7.1 billion in the first 11 months of 2011 through IPO listings in New York, London, Luxembourg, Hong Kong and Singapore, as compared to 72 issuers raising $6.9 billion in the same period of 2010, according to J.P. Morgans DR Markets 2011 Year in Review report. In addition, DR investors drove trading volumes to record levels in the first 11 months of 2011.
The report finds that DRs remained resilient in 2011 with 54 issuers raising over $14.6 billion via DR IPO or follow-on offerings, despite difficult market conditions driven by sovereign debt concerns in Europe, slowing economic growth concerns in the U.S., and rising inflation in emerging markets. This amount raised for the first 11 months of 2011 compares with 93 issuers raising $20.3 billion in the same period of 2010.
In addition, 14 existing issuers raised $7.5 billion via follow-on offerings in the first 11 months of 2011 compared to 21 issuers raising $13.4 billion during the same period in 2010. BRIC countries (Brazil, Russia, India and China) continued to dominate capital raising, accounting for more than 76% of IPO capital raised and 70% of follow-on capital raised. The DR IPO markets in China and India had 13 and 17 IPOs respectively, nearly half their record 29 and 32 IPOs in the first 11 months of 2010.
DR trading volume hit a new record, increasing 16% in the first 11 months of 2011 compared with the same period of 2010. The volume of DRs traded in the first 11 months of 2011 was 160 billion DRs versus the same period in 2010 when volume was 138 billion DRs. The value of DRs traded in the first 11 months of 2011 was $3.6 trillion compared with $3.2 trillion in the same period of 2010, reflecting a 12% increase even as the MSCI World Index and MSCI Emerging Market Index fell 8% and 20% respectively during this period.
“The year-on-year growth in DR trading volume and value shows the continued popularity of depositary receipts with issuers and investors even during a challenging year in the global capital markets,” said Dennis Bon, global head of J.P. Morgans DR business. “It’s also encouraging that local DRs in markets such as Hong Kong and Brazil continued to expand in 2011 while early-stage markets in the Middle East, Nigeria and Mongolia prepare for expected growth in 2012.” Bon has replaced Claudine Gallagher, who recently left the firm.
Other key findings from J.P. Morgans latest DR report include:
– 91 issuers from 27 countries created new sponsored DR programs during the first 11 months of 2011, increasing the total number of sponsored DR programs globally to 2,280.
– London overtook the U.S. as the preferred location for DR IPO capital raising and was the source of 46% (or $3.3 billion) of the $7.1 billion IPO capital raised in the first 11 months of 2011, followed by New York at 29% (or $2.1 billion) (NYSE $1.6 billion; NASDAQ $542 million) and Luxembourg at 9% (or $648 million).
The report also identified several key themes to watch in 2012:- IPO capital raising: A steady increase in DR capital-raising from emerging markets is expected as companies continue to access capital in the U.S., Western Europe, and Asia to meet their funding requirements.
– Asia-Pacific is expected to be the most active region in terms of number of IPO deals. China and India, and to a lesser extent Taiwan, are expected to be the most active markets. New DR markets such as Vietnam and Mongolia are likely to see deals over the next 12 to 18 months.
– In 2012, some local DR structures should continue to evolve. Local DRs are structured to better tap equity investors in new markets, providing local currency-denominated investment vehicles in markets such as Hong Kong, Brazil, India, Taiwan and Russia
– Hong Kong DRs will continue to develop as an alternative to ADRs and GDRs, as multinational companies with large existing sales operations in Asia or those that would like to tap into the growing pool of liquidity in Asia seek to list on the Hong Kong Stock Exchange.
– J.P. Morgan expects more issuers from China and Singapore to list Taiwan DRs on the Taiwan Stock Exchange and also expects the number of unsponsored BDRs trading on the Brazilian exchange to increase gradually in 2012.
– 2012 could potentially witness the much-anticipated launch of the first Chinese DRs on the Shanghai Stock Exchange.
(JDC)