Mideast firms take DRs route to raise funds

Firms in the Middle East are seen mopping up funds by issuing depositary receipts (DRs) in the international markets as the traditional source of capital dries up due to the financial crisis.

DRs are used as the preferred vehicle for portfolio diversification and cross border investments, where an investor can invest in equities of other countries where they can be traded on the local exchange.

The region witnessed $9.2 billion (Dh33.8bn) of DRs trade on the US and non-US exchanges last year.

"The GCC is one of the last markets where DRs will really kick off. There are a number of companies in the Gulf that we are talking to, several have mandates to do DRs. After the Dubai World announcement, lots of companies will be making announcements that involve DRs," said Peter Gotke, Vice-President for DRs at BNY Mellon.

"We already have a mandate from a leading Dubai-based corporate house for raising funds through DRs, to be listed on the London Stock Exchange. The deal is likely to be done in four to six weeks from now. We are in talks with several others for the DR programme."

Turkey's mobile telecommunication company Turkcell emerged as the most actively traded DR programme, which traded more than 203 million DRs, valued close to $3bn.

Egypt's Orascom Telecom traded a little more than $3.3bn on the IOB while Egypt's Orascom Construction became the region's third most actively traded programme, which traded nearly $2bn.

Total institutional investments in the Middle East DRs increased by 7.7 per cent over 2008 figures to exceed $2bn by the end of 2009.

A total of more than 300 investors from 34 countries hold DRs from the region.

The majority of investors in the Middle East DRs, 63.5 per cent, were based in North America.

Of all investors, 41 per cent followed a value or deep value strategy, where 35.5 per cent implemented a growth or aggressive growth strategy, according to the 2009 yearbook on the DR markets by BNY Mellon.

Dubai is also emerging as a destination of international firms to issue DRs here. And a few of the companies such as Gold Fields Limited, Hikma Pharmaceuticals and Man Industries (India) Limited have listed their DRs on Nasdaq Dubai.

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