Citigroup Corporate and Investment Banking reports that year-to-date capital raised in the form of Depositary Receipts by non-U.S. companies through June 2006 totalled US$11.8 billion, a 7% increase over the first half of 2005.

This was the second highest first half total ever, following the record US$17.1 billion raised during the comparable period in 2000. The 2006 year-to-date total was paced by Korea’s Lotte Shopping Co. whose US$3 billion IPO in February on the London Stock Exchange in the form of Global Depositary Receipts. This was the largest DR capital raising in history. (GDRs are DRs issued simultaneously in two or more markets through a global offering.)

The US$11.8 billion of DR capital raising was comprised of US$9.9 billion in primary offerings — companies coming to the U.S. or London market for the first time — and US$1.9 billion in secondary offerings — companies with existing programs offering additional tranches of DRs in the market. By comparison, during the first half of 2005, US$11 billion was raised in DR form, of which US$4.7 billion were in primary offerings, and US$6.3 billion in secondary offerings.

The worldwide increase in overall first half DR capital raisings was driven by Asian and Latin American issuers. Asian issuers raised US$6.7 billion, a 24% increase over the first half of 2005, accounting for 57% of the total. Latin American issuers raised US$2.1 billion, a 169% year-on-year gain, accounting for 18% of the total. Issuers from the Central and Eastern Europe, Middle East and Africa (CEEMEA) region raised US$1.7 billion, a 37% year-on-year decrease, for 14% of the total. Western European issuers raised US$1.3 billion, a 36% decrease from 2005, for an 11% share.

The pace of DR capital raisings is reflected in the direction of equity market indices. Virtually all major global equity markets have witnessed declines in asset values in May and June, driven by investor uncertainty over interest rates, inflation expectations, rising energy prices, and market volatility, especially in emerging markets. In fact, IPOs in DR form effectively stopped after global equity markets reached their yearly highs on May 9th. Year-to-date primary offerings (IPOs) in DR form through May 9th were US$9.5 billion, versus US$0.4 billion since May 9th. The pause in capital raising after May 9th was coincident with the U.S. Federal Reserve Open Market Committee’s quarter point interest rate tightening to 5.00% on May 10th, and the FOMC’s risk assessment that future interest rate increases would be data dependent.

“Despite the current pause in equity capital raising, we believe there are multiple DR offerings planned for the second half of 2006,” said Nancy Lissemore, head of Depositary Receipt Services for Citigroup. “Emerging market economies have improved in ways that make them far less vulnerable to fluctuations in global risk appetite compared to six to nine years ago.

“For example, many emerging economies have significant foreign exchange reserves, substantial trade surpluses, and borrow more in local currencies than before. As a result, debtors are less vulnerable to exchange rate fluctuations. No one knows how long the current market downturn will last, but thanks to stronger economic fundamentals, the probability of a long-duration downturn is greatly diminished,” she added.