Depository receipts business posts strong first half

Citigroup report signals strong DR issuance and capital raised in first half, with Asian activity driving the market.
Globally, the depository receipt (DR) universe is firing on all cylinders according to half-year results published by Citigroup, which point to a sizable upswing in both capital raised and issuance. Both indictors of success are being driven by activity in the Asia-Pacific region, which is again far outpacing other markets.

Led by the $3 billion IPO of South KoreaÆs Lotte Shopping in the form of global depository receipts, capital raised for depository receipts (DRs) has totalled $11.8 billion for the first half of the year. This mid-year number marks a 7% increase on the corresponding period in 2005 and is the second largest total of half-year capital raised since 2000, when $17.1 billion was raised in the first six months.

Of the total capital raised thus far in 2006, Asia was again the most active DR space. Issuers in this part of the world accounted for $6.7 billion of the total capital raised, a 24% increase over the same period of 2005.

The $6.7 billion of issuance from regional corporations also represents 57% of the DR capital raised worldwide. Citi says this fact further signifies that Asian companies both see this form of capital raising as a more liquid alternative to their domestic capital markets. Meanwhile concerns over Sarbanes-Oxley requirements are an ongoing factor in dissuading firms from a direct NYSE or NASDAQ listing.

Clearly, the bulk of the total capital comes from the listing of Lotte Shopping on the London Stock Exchange. The February listing, with the DR sponsored by Citigroup, was the largest DR capital raising in history, taking over the mantle from Chunghwa TelecomÆs $2.65 billion secondary offering in 2005.

Macquarie Korea Infrastructure Fund, TaiwanÆs Himax Technologies and ChinaÆs Focus Media Holdings also raised large amounts. Several Indian companies also featured in the top 25 DR issuers.

Although Citigroup believes that multiple DR will be planned in the second half of 2006, it also noted that primary market offerings (IPOs) have teetered recently. Since May, when global equity markets reached their peaks only $0.4 billion has been raised, compared to $9.5 billion prior to the market downturn.
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