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Jul 19, 2010

Depositary receipt market hits record highs

Figures from the first six months of 2010 show strong interest in the BRIC and frontier markets

Emerging economies pushed the depositary receipt (DR) market to record highs in the first half of 2010, according to new research by BNY Mellon, the depositary bank.

During the first six months of the year, American and global depositary receipt volume rose by 8.3 percent to a record 78.1 bn DRs, says the bank. The value of DRs traded also reached a new high, hitting $1.84 tn over the same period. 

The growth was led by the BRIC countries of Brazil, Russia, India and China. In the first half of 2010, India established 18 new sponsored programs, more than any other country. There were 64 new sponsored programs in total.

Meanwhile, India and China dominated in terms of the amount of money raised. The two countries raised nearly $2.4 bn in the six months to June, which is more than half of the global total, reports BNY Mellon.

‘Investors are continuing to seek out growth opportunities in the higher-growth markets,’ comments Michael Cole-Fontayn, CEO of the depositary receipts division at BNY Mellon. 

‘While politics, governance and institutions may not be as well developed in these regions as in developed markets, we are seeing some very significant investment opportunities, particularly in financial institutions, telecoms and commodity plays.’

‘That’s been something of a multi-year theme. It is mainly taking place in the BRIC countries, but we’re seeing increased activity and visibility for the frontier markets as well.’

BNY Mellon also has an update on the development of the market for Indian DRs (IDRs). In June this year, the bank acted as the structural adviser on the first ever IDR, launched by Standard Chartered on the Bombay Stock Exchange.

Cole-Fontayn says BNY Mellon is working with another company that it hopes to see launch an IDR by the end of 2010. 'The Standard Chartered IDR has received quite a lot of attention from other companies with substantial Indian business interests. I would suspect we will possibly see one more this year, and then we would be reasonably optimistic that there will be three to five next year,’ he notes. 

‘The regulatory process is quite demanding and as a result it can be a little time-intensive. Following the experience with Standard Chartered, we hope it will become more streamlined and routine.’

Top three biggest DR capital raisings in H1 2010

  • Gafisa (Brazil)
  • Alliance Bank (Kazakhstan)
  • Essar Oil (India)

Source: BNY Mellon