The Rise of International Equity Financing
International equity issuance increased rapidly in the 1990s, ending the decade at a record $216.6 billion. Almost everywhere in the world, equity is replacing alternative ways of raising capital as these sources of financing—governments, banks, and internal resources—are shrinking.
The U.S. capital markets—liquid, deep, fair, and well regulated—attracted record numbers of foreign issuers and investors in the 1990s. Foreign issuers came to the United States to raise capital for the expansion of current operations, to refinance and reduce debt, or to raise funds through the privatization of government-owned businesses. Foreign companies and governments raised $207.2 billion in the U.S. markets in 1999, slightly less than 1998’s record $207.7 billion and more than six times the level at the decade’s beginning.
Many foreign issuers find it easiest to raise capital in the United States through the creation of American Depositary Receipt programs. ADRs are traded on U.S. stock markets in lieu of the foreign shares. In 1999, the amount of capital raised via ADRs rose to a record $22 billion, as 33 companies and governments sought funding in the U.S. capital markets. For the decade, the number of ADR-listed programs rose more than three times from 176 to 532, according to the Bank of New York.
Privatizations became a large source of revenue for governments during the 1990s as they realized that private companies would operate more efficiently than companies owned or managed by governments. As a result, newly privatized companies competed more effectively. Both developed and developing markets have eagerly incorporated privatization programs into their economic reform programs. Global privatization programs raised only $33.3 billion in 1990, nearly five times less than 1997’s record $157.5 billion.