Saturday 20th December 2014
NEWS TICKER: FRIDAY DECEMBER 19TH 2014: Scotiabank’s Commodity Price Index dropped -4.8% m/m in November (-6.1% yr/yr) and will end 2014 in a ‘deflationary’ mode, says economist Patricia Mohr. "Significant capacity expansion and the defence of market share by major oil and iron ore producers— against a backdrop of lacklustre world economic growth — account for the softness at the end of the year," she says. Mohr adds that the decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing US shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets. She predicts prices will fall further this month, but will start to rebound in mid 201 - Jonathan Hill, the EU's financial-services commissioner, says he plans to pursue rules that separate a bank's proprietary trading from retail operations. "The sensible thing to do is to seek to make progress quickly" on the issue, Hill said. "There are still areas of risk in some of the biggest and most complicated banks,” reports Bloomberg- CME Group, said yesterday that it will change daily price limits in its CME Feeder Cattle futures effective today, pursuant to its emergency action authority. The current daily price limit for CME Feeder Cattle futures is $3.00 per hundredweight and will change to $4.50 per hundredweight effective on trade date December 18th Additionally, effective December 19th (tomorrow) these limits will have the ability to expand by 150% to $6.75 per hundredweight on any business day in the event that one of the first two contract months settles at limit on the previous trading day. CME Feeder Cattle futures have been locked limit for five consecutive days as a result of various factors. The change to daily price limits is necessary to ensure continued price discovery and risk transfer, says the CME. Daily price limits for CME Live Cattle futures will remain unchanged at $3.00 per hundredweight. Effective Friday, December 19th, these limits will have the ability to expand by 150 percent to $4.50 per hundredweight in the event that one of the first two contract months settles at limit on the previous trading day - The Straits Times Index (STI) ended +16.42 points higher or +0.51% to 3243.65, taking the year-to-date performance to +2.49%. The FTSE ST Mid Cap Index gained +0.29% while the FTSE ST Small Cap Index gained +0.71%. The top active stocks were Keppel Corp (+2.68%), SingTel (-1.02%), DBS (+2.36%), Global Logistic (-3.21%) and UOB (+0.30%). The outperforming sectors today were represented by the FTSE ST Basic Materials Index (+3.13%). The two biggest stocks of the FTSE ST Basic Materials Index are Midas Holdings (+6.38%) and Geo Energy Resources (unchanged). The underperforming sector was the FTSE ST Telecommunications Index, which declined -0.98% with SingTel’s share price declining -1.02% and StarHub’s share price declining-0.73%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+2.56%), DBXT CSI300 ETF (+0.42%), STI ETF (+0.61%). The three most active Real Estate Investment Trusts (REITs) by value were Ascendas REIT (-0.42%), Keppel DC REIT (unchanged), Suntec REIT (+0.26%). The most active index warrants by value today were HSI23400MBeCW150129 (+7.32%), HSI22600MBePW150129 (unchanged), HSI24000MBeCW150129 (+12.50%). The most active stock warrants by value today were KepCorp MBeCW150602 (+21.95%), DBS MB eCW150420 (+29.29%), DBS MB ePW150402 (-18.03%) - Spain’s Director of Public Prosecutions, Eduardo Torres Dulce, has resigned from the post for “personal reasons”, Spanish daily El Mundo reported this morning. A spokesman for the Public Prosecutor’s office confirmed the news by telephone to The Spain Report, saying that Mr. Torres Dulce had informed Justice Minister Rafael Catalá of his decision: “but that it perhaps would not come into effect until they find a replacement”. That decision is taken at cabinet level. The next cabinet meeting for Rajoy’s government is tomorrow morning - Hedge funds including Marshall Wace, Odey Asset Management and Lansdowne Partners are shorting OTP Bank Plc, a Hungarian lender with a Russian subsidiary whose shares have fallen almost 6% this month reports Albourne Village. All three London-based funds took or increased their position this month in OTP, Hungary’s largest lender, according to data compiled by Bloomberg. The ruble rose today in Moscow after plunging as much as 19%against the dollar yesterday, when Russia’s central bank increased interest rates to 17% percent from 10.5 percent in an attempt to stem the decline. The ruble is down 52% this year and has taken a disproportionate beating in the wake of sanctions and falling oil prices. The country still has the third largest currency reserves in the world and so is unlikely to default. According to Eric Chaney, Manolis Davradakis and Greg Venizelos from AXA IM’s Research and Investment Strategy team Russia will likely resort to fiscal stimulus to contain the risk of social and political unrest. Capital controls, political unrest and even default on private hard currency debts are possible outcomes they say. They credit default swaps market is pricing a one-third probability of sovereign default within five years - Indonesia is ramping up financing for its $439bn development program, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise IDR7.14trn rupiah (around $568m) from notes that will fund particular construction ventures next year, compared with IDR1.5trn this year, which say local press reports, will help finance its estimated spending of about IDR5,519trn from 2015 to 2019 to build roads, railways and power plants.

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.”

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP

Related News

Related Articles