Asia-Pacific Depositary Receipts Capital Raising Increases Significantly in 2009

In a year of gradual economic recovery, the issuance and trading of depositary receipts (DR) in 2009 remained strong in the Asia-Pacific region, especially in key markets such as China, India and Taiwan, according to JPMorgan’s inaugural ‘Depositary Receipts – APAC Year in Review 2009’.

In 2009, initial public offering (IPO) capital raising in the region through DRs was four times higher than in the previous year, as 26 new issuers raised over US$4bn, compared with 18 issuers raising US$871m in 2008. DR liquidity also remained extremely high, with 36 billion DR shares traded on APAC DR programmes in 2009, close to the record 38 billion shares traded in 2008.

The majority of DR IPO capital raising in 2009 were from APAC, with 26 issuers from the region overall, compared to 28 globally.

“The depositary receipt has proven its resilience as a cross-border capital raising instrument in a volatile market,” said Kenneth Tse, Asia-Pacific head of JPMorgan’s DR business. “As the global financial crisis subsides, the depositary receipt will play an even bigger role as a capital raising tool in funding the growth of the emerging APAC economies.”

Other key findings from JPMorgan’s report include:

  • 47 issuers from seven countries in Asia-Pacific created 54 new DR programmes in 2009, increasing the total number of sponsored DR programmes from Asia-Pacific issuers to 942.
  • New York-listed American Depositary Receipts (ADR) continued to dominate DR IPO capital raising by Asia-Pacific issuers, driven primarily by Chinese issuers. The Shanda Games Nasdaq US$1bn IPO was the standout deal of the year, since it was the largest ever DR single listed IPO offering from China. JPMorgan serves as the depositary bank on this programme.
  • Secondary offerings were an important source of capital for issuers from the region: 21 existing issuers from Asia-Pacific raised US$5.2bn in the US, Europe and Asia through follow-ons in 2009, compared to US$2.2bn raised by 16 issuers in 2008.
  • As relations between mainland China and Taiwan improved, four new issuers from Hong Kong, listed on the Taiwan Stock Exchange in the form of Taiwan Depositary Receipts (TDR) in 2009.
  • Several major Asian issuers delisted and deregistered from the NYSE or Nasdaq in 2009 to trade OTC.

Unsponsored DR Programmes

There continued to be a rapid increase in unsponsored ADR programmes in 2009, as global depositary banks continued to create ADR programmes, often without investor interest or issuer consent. Since the SEC rule change in October 2008, more than 50 unsponsored programmes, mostly from Japan, have been terminated as issuers expressed discontent on depositary banks’ establishment of such programmes without their consent. JPMorgan continued with its collaborative, consultative and transparent approach with the issuer prior to the establishment of unsponsored programmes.

Themes to Watch in 2010

  • IPO Capital Raising: Issuers from emerging markets will increasingly use DRs to raise capital, with Asia-Pacific expected to be the most active region. China and India will be at the forefront of this wave of capital raising, followed by Taiwan. Newer markets, such as Vietnam, will emerge in the next 18 to 24 months. Private equity and venture capital firms will continue to use DR IPO offerings to exit their investments, especially in emerging market high growth sectors, such as e-commerce, biotech, alternate energy, internet and consumer sectors.
  • Local DRs: DRs structured to tap equity investors in emerging markets, known as “local DRs”, will continue to develop. Hong Kong’s HKEx allows foreign issuers access to Asian investors through Hong Kong DRs and the first Indian DR is expected to launch in the second half of 2010. Issuers from China and Singapore are expected to use TDRs to list on the Taiwan Stock Exchange.
  • New over-the-counter (OTC) Level 1 Markets: The Indian government is considering a proposal to amend existing rules that govern ADRs to allow Indian companies easier access to the US market through Level 1. The primary driver for Indian issuers to establish a Level 1 programme will be to diversify their investor base and build a presence in the US market.
  • Alternative Trading Venues: Alternative trading venues for DRs will emerge as more American depositary receipts (ADRs) and global depositary receipts (GDRs) are made eligible to trade in electronic markets. While this will lead to increased liquidity, primary exchanges like NYSE, Nasdaq and London will continue to dominate overall liquidity.
  • Delisting: A select number of companies will continue to delist and deregister their ADR programmes from US exchanges to trade OTC.
  • Future Risks: Volatile markets could limit the growth of the DR industry in 2010. In Asia, there is the possibility that inflation could arrive earlier than expected. There could also be risks associated with the timing and effects of the withdrawal of fiscal and monetary stimulus by the region’s governments.


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