Debt instruments such as convertible bonds and securitization are growing forms of investment in emerging markets, says Michael Cole-Fontayn, managing director, global issuer services, The Bank of New York. But, Cole-Fontayn says, depositary receipts are still the most popular means for companies in these markets to raise foreign capital. We continue to see significant demand for emerging markets, and we certainly see some significant flows in depositary receipt programs, both in terms of ADRs and GDRs, he says.
Activity in Russia has been particularly high, principally focused around the oil and gas sector. However, in recent months a number of Russian companies in the telecom, steel, mining and cosmetics sectors have come to market. Russian telecom company Mobile TeleSystems was the largest DR transaction last year. According to Cole-Fontayn, up to 80% of Russian companies market capitalization is in DR programs, with emerging market and country funds owning in excess of 850 million receipts, worth $42 billion. There is also increasing DR activity in Hungary, Poland, the Czech Republic, Romania, Bulgaria and the Ukraine. DRs provide an opportunity to get into these markets quite early in an infrastructure-efficient way, Cole-Fontayn explains. He says DRs can also mitigate risks associated with early-stage investment in emerging markets. Criteria companies must meet in order to list DRs on international exchanges can also lead to improvements in domestic corporate governance.