Wednesday 26th November 2014
NEWS TICKER, WEDNESDAY NOVEMBER 26TH 2014: According to local press reports, the chief of the UAE stock market regulator wants more industrial companies to list their shares on exchanges dominated by property and investment firms. Abdulla Al Turifi, chief executive of the UAE Securities and Commodities Authority (SCA), says the regulator is reviewing applications for initial public offerings of up to four companies to list on the UAE bourses and another three applications for a new secondary market for companies that currently trade only OTC. The UAE is seeking to broaden its industrial base and reduce its reliance on hydrocarbons, but the country’s two main stock exchanges are dominated by property and financial listings. Recent IPOs have come from retail, a sector also previously unrepresented on the exchanges. In February this year, the SCA and the Ministry of Economy issued a law requiring private joint stock companies to list their shares on a second market, in the hope that it would encourage firms to eventually move onto the main board- Moody's has placed the B3 corporate family rating, B3-PD probability of default rating and B1 rating on the senior secured facilities of Reynolds Group Holdings Limited under review for downgrade. The review follows RGHL's announcement that it had entered into a definitive agreement to sell its SIG Combibloc business to Onex Corporation for up to €3.75bn. The transaction is expected to close in the first quarter of 2015, pending final regulatory approvals and the satisfaction of other customary closing conditions - Morocco’s House of Representatives yesterday approved a new law authorising the establishment of Islamic banks and private companies to issue Islamic bonds. Since the Islamist-led government took office in 2011, it has been attempting to develop Islamic finance in the country. The bill was passed unanimously - According to Iran’s Fars News Agency (FNA) Iran’s non-oil exports have grown by 28% since the end of March. Iran’s non-oil exports have surged by 28% since the Persian new year (March 21), Fars News Non-oil export revenues, minus gas condensates, were approximately $18bn this year. Roughly $5bn from the non-oil exports revenues were from tourism (up 32%), though the bulk comes from engineering, workforce and transit services. Some 93% of the country’s non-oil export revenue comes from Asian countries. Imports since the end of March have risen 32% to $21.695bn -IXICO the brain health company, today announces that the contracts for two separate clinical trials in Huntington’s disease with two pharmaceutical companies have been extended. As a consequence, IXICO anticipates the revenue from these two contracts to be significantly enhanced to a potential £2.5m over approximately three years – Any announcement around the sale of Japan Post Holding’s projected IPO now looks to be postponed until January, according to the company’s president Taizo Nishimuro, at a news conference earlier today. In October, the government selected Nomura Securities and ten other underwriters for the initial public offering. The IPO is the first leg of the government's plan to sell up to two-thirds of Japan Post's shares. The government is hoping to raise more than $20bn from the sale - The US Commodity Futures Trading Commission (CFTC) filed notice to revoke the registrations of Altamont Global Partners LLC (Altamont), a commodity pool operator of Longwood, Florida, and John G. Wilkins a principal, managing member and approximate one-third owner of Altamont. The notice alleges that Altamont and Wilkins are subject to statutory disqualification from CFTC registration based on an order for entry of default judgment and an amended Order of permanent injunction. The orders include findings that Altamont and Wilkins misappropriated commodity pool funds and issued false quarterly statements to pool participants. The notice alleges that Wilkins is subject to statutory disqualification from CFTC registration based on his conviction for conspiracy to commit mail fraud and wire fraud. A US District Court has sentenced Wilkins to 108 months in federal prison - The Straits Times Index (STI) ended +0.94 points higher or +0.03% to 3345.93, taking the year-to-date performance to +5.72%. The FTSE ST Mid Cap Index gained +0.08% while the FTSE ST Small Cap Index gained +0.08%. The top active stocks were SingTel (+0.26%), Global Logistic (+1.52%), DBS (-0.40%), OCBC Bank (+1.26%) and UOB (-0.42%).The outperforming sectors today were represented by the FTSE ST Consumer Services Index (+0.40%). The two biggest stocks of the FTSE ST Consumer Services Index are Jardine Cycle & Carriage (+0.29%) and Genting Singapore (+0.44%). The underperforming sector was the FTSE ST Utilities Index, which declined -0.97% with United Envirotech’s share price declining -0.61% and Hyflux’s share price gaining +1.09%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+0.78%), SPDR Gold Shares (-0.22%), United SSE 50 China ETF (+2.33%). The three most active Real Estate Investment Trusts (REITs) by value were Suntec REIT (+0.26%), Ascendas REIT (+0.87%), CapitaMall Trust (+0.51%). The most active index warrants by value were HSI23800MBeCW141230 (+20.35%), HSI24400MBeCW141230 (+18.67%), HSI23600MBePW141230 (-20.00%) and the most active stock warrants by value today were OCBC Bk MBeCW150413 (+6.38%), KepCorp MBePW150330 (-5.88%), UOB MB eCW150415 (unchanged) - Sentiment in the Italian consumer sector has taken another step backwards according to the latest figures this month. The Italian Consumer Confidence indicator has now fallen for a seventh straight month to produce a November reading of just 100.8, from a peak above 106.0 this sentiment metric reached 101.3 last month, market expectations for today’s reading were for a slight rise to 101.6. The Organisation for Economic Co-operation and Development (OECD) yesterday published a less than optimistic report for the near term growth prospects of the Italian economy. The previous OECD report projected growth for Italy of 0.5% over the full 2014 year but this has now been revised downwards by almost a full point to forecast a 2014 contraction of -0.4%.

New Asian DR issues down. Will 2012 be any better?

Friday, 09 December 2011
New Asian DR issues down. Will 2012 be any better? Against the current backdrop of an unresolved eurozone crisis and slowing global economy, it is not surprising that the depositary market across the spectrum has grown quiet. Asian companies along with Brazil still account for the bulk of global DR issuance but like many they are waiting and watching for events to unfold. Lynn Strongin Dodds reports. http://www.ftseglobalmarkets.com/

Against the current backdrop of an unresolved eurozone crisis and slowing global economy, it is not surprising that the depositary market across the spectrum has grown quiet. Asian companies along with Brazil still account for the bulk of global DR issuance but like many they are waiting and watching for events to unfold. Lynn Strongin Dodds reports.

According to Gregory Roath, head of Asia-Pacific for BNY Mellon’s depositary receipts (DR) business, it is “fair to say in respect to capital raising, which includes initial public offerings of depositary receipts, there has been a general slowdown. It has affected the plans of issuers who were considering issuing in the third and, potentially, in the fourth quarter. There is still a healthy pipeline but in terms of timing, they may want to wait until the first or second quarter of 2012.”

Kenneth Tse, Asia Pacific head of JP Morgan’s depositary receipts group, adds: “There has been a great deal of global uncertainty with Europe in the middle of it. However, although flows to emerging markets have slowed, the Asian economy and the BRIC countries in particular have been more resilient. The one major trend that we have seen this year is the return of Russia, which was totally absent last year.”



According to Edwin Reyes, managing director and global product head of depositary receipts at Deutsche Bank, there were 166 new depositary receipt deals and follow-ons in 2010 with Asia accounting for 70%, Europe at 17% and Latin America at 10%. So far this year, the total has been 96, with Asia contributing 53%, Europe at 28% but staying roughly the same as in 2010 in terms of the number of deals, and Latin America at 13%.  

The bulk of activity happened in the first half with BNY Mellon figures showing 79 new sponsored programmes from 19 countries compared to 64 programmes from the same period in 2010. Australia led the way with 13 followed by 12 from India and nine each from Russia and China. Brazilian and Mexican issuers were also busy with four each. In terms of capital raised, issuers from Russia accounted for nearly half of the total $11.7bn in the first six months with financial group VTB’s $2.8bn follow-on offering being the most notable as the largest DR capital raising. Meanwhile, China and India executed the largest number of transactions at 12 and 11, totalling $2.6bn and nearly $200m respectively.

The BNY Mellon report noted that the New York Stock Exchange and NASDAQ remain the most popular venues for listings, accounting for almost 86% of all DR trading value worldwide.  In total, 65.1bn US-listed DRs, valued at $1.66trn, traded on US markets during the first half of 2011 with the most active being China’s most popular online search engine, Baidu, Brazil’s Petrobras and industrial metals and mining firm Vale, the UK’s BP and Israel’s Teva Pharmaceuticals.

 “The US continues to be the most popular for the Chinese private sector because that is where their peer group is,” explains Roath. “Investors understand start-up companies and their business models.” Tse echoes the sentiments. “China prefers the US markets because the internet and e-commerce industries are more developed in the country than in Europe. Russian companies though like the London Stock Exchange because it is stronger in mining and commodity related businesses.”

While fears over the eurozone debt crisis and slowing economic growth are making participants nervous, they are not the only reasons holding Chinese and Indian companies at bay. Accounting scandals in both countries have also made investors wary. There have long been suspicions that Chinese companies listed overseas do not adhere to strict accounting standards plus there are concerns over the Chinese government prohibiting US regulators from examining China-based auditing firms.

Reporting irregularities

In September, these issues came into sharper focus when the US justice department announced it was investigating accounting irregularities at Chinese companies on the US exchanges.  Although the names of companies have not been revealed, it has been reported that it is looking at both civil proceedings as well as criminal charges.  The minute the news hit the wires, American DRs of some Chinese companies such as Baidu as well as Weibo, which runs a service similar to Twitter, fell sharply.

The charges came after a review conducted earlier in the year by the US Securities and Exchange Commission (SEC) into accounting problems at foreign-based stock issuers. It was looking into the resignations of auditors and book-keeping irregularities at dozens of China-based companies.  For example, Deloitte Touche Tohmatsu CPA in May resigned as auditor of Chinese software company Longtop Financial Technologies, because it said it found falsified financial records and bank balance confirmations. Valentina Chuang, head of depositary receipt services for Asia at Citi, says:  “Although market conditions are the main reason why there has been a slowdown in issuance from Chinese companies, the scandals have had some impact. It has made investors more cautious. They are asking more questions and looking more closely at the companies’ corporate governance structures.”

In some ways, the scandals have had a positive impact in that it is forcing Chinese companies to raise their game. They not only have to strengthen their corporate governance standards but also their disclosures to the US regulators.

As for India, the Securities and Exchange Board of India (SEBI) banned seven companies from raising fresh capital, after investigations revealed they manipulated share prices after issuing global DRs (GDRs). The regulator also barred ten entities, including a foreign institutional investor (FII) and sub-accounts, from dealing in securities market.

A recent study conducted by Crisil Research, which is part of the Standard & Poor’s Index Services Group, analysed 40 GDRs issued by Indian companies in 2010 and found  that investors lost money in 85% with four out of five issues giving a negative return of 35% or more.

Looking ahead, while no one is brave enough to predict when the markets will recover, participants are hopeful that there will be a crop of issuance from India and China in the first and second quarters of 2012. ”One of the key challenges is the slowdown in some markets and that there is not the same level of deals coming through,” says Reyes.”However you have to be competitive and ready for when the markets improve.  You also need to be able to provide more than the basic services. Issuers are looking for value-added capabilities such as support with their investor relations programmes.  In this case we adopt a more consultative role and help them with identifying new investors.”

Local markets such as Hong Kong and Taiwan, albeit hit by the current turbulence, are also expected to rebound. They are increasingly attracting foreign companies on the back of the Asian economic growth story.  

Taiwan has been a favourite with repatriated companies although it is gaining traction from firms that do not have the same domestic connection. For example, in May, Hong Kong-listed companies NewOcean Energy Holdings, a vendor and distributor of liquefied petroleum gas in China and New Media Group Holdings, an investment holding company, filed to list troubled debt restructurings (TDRs).

HK draws luxury brands

Hong Kong too is popular, particularly with foreign luxury brand names which want to tap into mainland China’s burgeoning middle classes and wealthy consumers.  Handbag manufacturer Coach, which announced in May its intention to list on the Hong Stock Exchange, was hoping to make its debut in early December.  It follows Italian fashion house Prada and US luggage manufacturer Samsonite International, which raised $2.5bn and $1.25bn respectively in June. Coach, like other luxury brands, is targeting China’s newly-affluent consumers and says it plans to open 30 stores in China next year.

The handbag maker says in a filing to the Hong Kong Stock Exchange that it will issue up to 293.6m Hong Kong depositary receipts “by way of introduction” rather than a public offering and said no new funds would be raised. “China is our largest geographic growth opportunity, given the size of the market, its rate of growth, and our increasing brand awareness,” the company says in the statement. Fashion IPOs are also having a knock-on effect on their Chinese suppliers. One of Coach’s major Chinese suppliers, handbag maker Sitoy Group, is also due to list in Hong Kong in December.

Hong Kong is also a magnet for natural resource companies that want to forge closer links with resource-hungry China. For example, Swiss commodities trader Glencore International raised $20bn through a dual listing in Hong Kong and London in May.

There are also stirrings in the frontier markets of Mongolia, Indonesia and Vietnam which are looking towards Hong Kong as a way to raise their profile in China. Tse says: “Although BRIC will continue to dominate GDRs, we are seeing interest from state-owned enterprises for example in Mongolia. The firm recently organised the first Capital Raising Options for Mongolian Companies workshop where participants worked with the government to educate companies on how they can raise funds through a listing in Hong Kong. Vietnam has also seen a small number of GDRs below the $50m mark and I expect to see larger deals in the next two to three years.”

Aside from new countries entering the local DR game, different structures are also expected to appear. In June this year, Barclays Bank’s listed nine of its iPath exchange-traded notes (ETNs) on the Tokyo Stock Exchange via a Japanese DR.  It was noteworthy for being the first ever ETN listing in Japan as well as the first listing of non-Japanese securities in a format of a JDR.

 We see this as a very interesting development,” says Chuang. “One of the main reasons for the listing is to attract liquidity and we now are seeing more ETF and ETN providers hoping to replicate the process in Japan. As for the growing importance of the renminbi (RMB) market, DR players do not see it as a threat but as a complement to equity issuance.

“RMB issuance is a growing sector in some bond markets and we would expect this to continue once markets stabilise “says Roath. “In time we believe that equity RMB issuance will follow. However, it depends on the financing needs and structure of the company as to whether debt or equity is preferable.”

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