Singapore has broken new ground by allowing global depositary receipts (GDRs) to list on its exchange with the aim of offering an alternative for overseas companies that otherwise would have ended up in London or Luxembourg.
However, there is more to this trend than simply snatching existing instruments away from their traditional homes, and industry bankers say work is currently going on with regard to the introduction of domestic DRs in Tokyo, Hong Kong, Korea and India, as well as the creation of an Asian DR that could trade seamlessly in all the major Asian markets.
While somewhat more ambitious than the domestic DRs, the Asian DR concept has moved well beyond the drawing board and should be a reality in less than six months, says Bank of New York Mellon, which is the bank behind this product. At least one other major DR bank is currently working on a similar concept, but doesnÆt feel ready to talk about it in public just yet.
All these developments would mark something of a reversal of the traditional use of DRs as a means for Asian companies to gain access to international capital through a listing in New York or London. However, bankers say the initial DR listing targets for the exchanges in Tokyo, Singapore, Hong Kong and Seoul wonÆt be non-Asian companies, but rather companies from elsewhere in the region, specifically India, Taiwan, China, Korea and Hong Kong.
Still, this new trend will serve as a confirmation that Asia is no longer mainly an importer of capital, but rather has transformed into a place where years of household savings are now beginning to be put to work. And deeming from the phenomenal gains in the regional stock markets since the August correction some of it is clearly going into stocks.
The potential introduction of DRs in Asia should also be seen in the context of the ongoing consolidation among the worldÆs stock exchanges and the increasing competition between bourses as they fight to be one of the five or so markets that really matter. Attracting more companies to list is key in this respect, either through the targeting of companies in new geographies or through the introduction of new asset classes that appeal to a different category of issuer.
Hong Kong, which is under additional pressure as more and more of the Chinese companies that have traditionally sought to list in the territory are currently going public in Shanghai instead, has admitted companies from Malaysia and Australia over the past year and has ventured as far as Kazakhstan in its efforts to attract new listing candidates. Singapore has carved a niche for itself with its Reit and business trust products, as well
as the earlier mentioned GDRs.
DRs û in all forms û could become a great help in these efforts, industry bankers say, noting that this is a well-known and proven instrument that wonÆt take too much explaining for potential issuers.
ôItÆs an easy, low-cost way for a market to establish if it can attract overseas issuers, as the opportunity cost is low,ö says Kenneth Tse, Asia-Pacific head of the depositary receipts group at JPMorgan.
So far only two companies have listed GDRs in Singapore since this possibility became available in June 2006 û steel manufacturer Uttam Galva Steels and Webel-SL Energy Systems, a producer of solar cells and modules. Both of them are from India, which is likely to be the primary target for the exchange given the frequency by which Indian companies are issuing GDRs. Sources say there are about four or five other Indian companies in the pipeline which have chosen Singapore as a listing destination over London or Luxembourg. The next step in the marketing effort for this product is expected to be Taiwan. According to Tse at JPMorgan, which is the depositary bank for both the GDRs that have listed in Singapore so far, the benefits of choosing Singapore over the usual European destinations include a quicker time to market, a lower cost than London (but about the same as Luxembourg) and the fact that India is in roughly the same time zone as Singapore. Many Indian companies also have convertible bonds listed in Singapore and know that market already.
Like they would be in London or Luxembourg, the GDR is dollar-denominated, open only to institutions and high net-worth individuals and settled by Euroclear, meaning it isnÆt really an Asian instrument as such. However, it does help boost the overall market cap of the exchange and also does give access to more overseas-listed companies for the investors who can trade them.
By comparison, the ôdomesticö DRs are securities that are designed for domestic trading, clearing and settlement, but not for being transported across borders. Korea and India have both amended their regulations over the past three months to enable the listing of KDRs and IDRs, respectively, and Tokyo and Hong Kong are looking at introducing JDRs and HDRs. These instruments will all be trading in the domestic currency and will be open to retail investors.
According to sources, Korea is expected to list its first KDR in November for Hong Kong-listed Huafeng Textiles and Tokyo could be rolling out such an instrument during the course of next year. Hong Kong is still very much at the early stages of planning, they say, although Hong Kong exchange officials have mentioned the plans in public, which suggests that they too are serious about this.
The concept isnÆt new, however. In fact Singapore, Taiwan and Korea already have versions of domestic DRs, but in all three cases they have failed to take off. In Singapore, only one company has chosen this option; Taiwan have five TDRs; and Korea, which allowed foreign companies to issue KDRs as early as 1995, has not seen a single issue so far. However, the Korean Stock Exchange hopes that the amendment to the DR listing regulations should rectify this situation and the fact that Huafeng Textile has been planning a KDR since December last year does seem promising.
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