China leads the way with 82% of DR capital raised; DRs expected to rise 25% in trading value and 6% in trading volume by year end 2014
Investor demand for international securities pushed capital raising in depositary receipts (DRs) to over $38 billion in 2014, more than a three-fold increase compared to the previous year. This is its highest level since the 2008 financial crisis. Chinese companies accounted for more than a third of the year's capital raising transactions, with online retail giant Alibaba raising $25 billion from the largest initial public offering (IPO) in history.
BNY Mellon's Depositary Receipts business forecasts that trading volume will rise 6% over 2013 levels to 152 billion DRs by year end 2014, based on statistics thus far. An estimated $3.2 trillion of DRs are expected to trade by the end of this year, a 25% increase compared to 2013.
"Investors continue to see DRs as a preferred option for portfolio diversification and cross-border investing, despite recent volatility in global stock markets," said Christopher M. Kearns, CEO of BNY Mellon's Depositary Receipts business. "The dramatic jump in capital raised through DRs shows that companies from around the globe rely extensively on DRs to finance their growth and expansion.
"It's been another pioneering year for DRs as well with ground-breaking new rules in India, Taiwan and Romania that are helping open up these markets to increased foreign investment," Kearns added.
DR Industry Highlights of 2014 Include:
- DR capital raising of over $38 billion, from 56 transactions across 19 countries. This compares to $10.4 billion from 51 DR transactions across 20 countries in the whole of 2013
- The top five companies in terms of DR value traded in descending order were Alibaba, Baidu, Petrobras, Qihoo 360, and Vale
- The top sectors by volume traded were Oil & Gas (23.7 billion), Banks (19.5 billion), and Metals & Mining (17.3 billion)
- The top five countries by value traded were China ($804 billion), Brazil ($408 billion), UK ($393 billion), Russia ($201 billion) and Netherlands ($95 billion). The top five countries by volume traded were Brazil (37.2 billion), China (24.6 billion), Russia (17.8 billion), UK (9.7 billion) and Mexico (5 billion)
- Institutional DR ownership is up by more than 7% to $53 billion (Q3 2014 compared to Q3 2013)
- The BNY Mellon Classic ADR IndexSM Series, which tracks the performance of depositary receipts by country of origin, showed India with the highest projected total annual return at +35.6%, followed by Israel (+30.9%), Indonesia (+23.7%), Argentina (+23.2%) and Denmark (+19.3%)
- By industry sector, the BNY Mellon Classic ADR IndexSM Series had Healthcare leading with projected total annual returns of +11.3%, followed by Technology (+10%), and Utilities (+8.7%)
- Investors were able to invest in a record 3,757 DR programs for companies from 80 countries.
New and Emerging Markets for DR Investors
2014 was another year of positive developments for the opening of depositary receipt markets. New rules in Taiwan, India and Romania may permit new types of DR programs. In India and Taiwan, over-the-counter (OTC) non-capital-raising DRs may soon provide a new channel for secondary trading in Indian and Taiwanese corporates. Meanwhile, Romanian-based companies already listed for trading on a Romanian regulated market are now able to establish DR programs in the EU, allowing them to utilize DRs for non-capital raising technical listings and secondary public offers. In addition, Trustco Group Holdings Limited launched the first sponsored ADR of any company from Namibia.
Regional and Industry Highlights
Globally, companies from 19 countries launched 56 capital raising DR transactions and raised more than $38 billion. Companies in the Asia Pacific region (APAC) led with 32 DR programs raising nearly $33 billion. Chinese companies accounted for 24 of those programs and raised $31.6 billion. Companies in Europe, Middle East and Africa (EMEA) followed with 20 capital raising transactions raising $3.2 billion of which two Russia companies raised $1.3 billion. Four transactions from Latin America raised $2.4 billion for companies in Brazil, Chile, and Colombia.
Companies from the EMEA region experienced the most trading traffic with 56.7 billion DRs traded valued at $1.2 trillion; followed by Latin American companies with 44.6 billion DRs traded at a value of $552.1 billion; and APAC companies, where investors traded 38.4 billion DRs valued at $1.1 trillion.
Oil, Gas, & Consumable Fuels was the most actively traded sector with 23.7 billion DRs traded at a value of $440.6 billion. Banks came in second with 19.5 billion DRs traded at a value of $222.9 billion, followed by the Metals & Mining industry with 17.3 billion DRs traded and valued at $261.4 billion, the Semiconductors & Semiconductor Equipment sector with 10.5 billion DRs traded at a value of $161 billion, and Internet Software & Services with 9.5 billion DRs traded at a value of $552.5 billion.
New Depositary Receipt Programs
DR programs continue to grow, with 161 sponsored and unsponsored programs established for issuers from 37 countries through November 2014. In total, investors were able to select from a record 3,757 sponsored and unsponsored DR programs for companies from 80 countries as of November 30, 2014. Seventy-four new sponsored programs for firms from 28 countries were established. Of those, 22 companies listed their DRs for trading on U.S. stock exchanges, three listed their DRs for trading in Europe, and 41 issuers chose to establish DR programs for the U.S. OTC market (the remaining programs trade on various other platforms). Chinese issuers established the most new sponsored programs totalling 15, followed by Australian issuers at nine. In response to continued investor and broker demand, 87 new unsponsored DR programs were created through the end of November 2014, bringing the total number of unsponsored DRs to more than 1,600 representing issuers from over 50 countries.
BNY Mellon acts as depositary for more than 2,800 American and global depositary receipt programs, acting in partnership with leading companies from over 65 countries. BNY Mellon is committed to helping securities issuers access the world's rapidly evolving financial markets and delivers a comprehensive suite of depositary receipt services.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2014, BNY Mellon had $28.3 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).