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International Equity Offerings and listings

Introduction
1. Reasons for marking an equity offering outside its home jurisdiction:
(1) To establish access to well-developed foreign capital markets for
immediate and future financing needs
(2) To overcome limited investor appetite in the home market/tap into foreign
investor interests;
(3) To achieve a desired investor base in a particular foreign country for
strategic/business reasons
(4) To gain attention from analysts
(5) To benchmark against a more appropriate peer group
(6) To gain publicity or enhance international prestige
2. Destination for issuers in search of international capital:
(1) Until the 2000s, it is US markets
(2) Between 2002 and 2001, 41% IPOs in LSE, 23% in NY
(3) SG and HK as hubs for the Asia-Pacific region
3. Consider factors for international IPO:
(1) Geographical proximity
(2) More intense competition between exchanges facilitated by technological
improvements
(3) Regulation/regulatory enviroment
(4) Listing standards
(5) Fees
(6) Valuation
(7) The quality of an exchanges institutional investors and their
understanding of a companys business
IPO methods
1. Introductions
2. Placings
3. Intermediaries offers
4. Offers for sale and subscription
Introductions
Placing
Intermedia Offers for sale
ries offers
and
or
subscription
What
A
companys A placing is a Similar
to Is made by a
is
shares
are marketing of and
companys
already widely shares to a combined
sponsor
to
the
held
with
at selected and with
a public
(retail
least 25% of limited group placing
offer)
and
the
shares of,
usually A marketing institutional
being in public institutional
of new or investors.
hands,
those investors
existing
The shares being
shares may be
means of an offered may be
introduced to
offer by, or existing
shares
the
market
on behalf of held by current
without
the
the
shareholders (offer
issue of new
company to for sale) or new
shares or any
intermediari shares (offer for
marketing
of
es for them subscription)
existing shares
to allocate

to
their
own, usually
private
clients
featur
e

Raises no fund

Used
situati
ons

Demerged from
their
parent
companies
Companies
seeking
a
standard listing
of their shares
in
circumstances
where
their
shares
are
already listed in
another
jurisdiction.

Standard
practice
to
involve
bookbuilding
a pathfinder or
price-range
prospectus
would
be
made
available

Normally
underwritten

Strategies for Developing Regulatory Framework for International


Offerings
1. Convergence
(1) Full convergence: a single, generally applicable, set of standards
EU has achieved this level of cross-border uniformity within the internal
market for prospectus disclusures and consolidated financial reporting
2. Private placement
(1) Private placements exemptions enable such capital formation to occur
without the burden of full compliance with foreign capital markets law.
(2) Not uncommon structure for an international equity offer is for the issuer
to make a full retail and wholesale prospectus offer in its home country,
accompanied by cross-border private placements to wholesale investors in
selected foreign jurisdictions
(3) All parties involved should be able to look after their own interests without
the help of the state
Developing a Regulatory Framework for International Equity
Issuance Activity: The Practical Application of International
Standards

1. IOSCO international disclosure standards for non-financial information


IOSCO (International Organization of Securities Commisssions)
A Genuine Single Regulatory Regime for Cross-border Offers and
Listings of Securities: The EU Passport
1. The basic idea that once a prospectus has been approved in one state it can
then be used for issuance and listing activity in other EEA states without the
need for any further approvals,; the host states cannot require additional local
information and to insist on full translation.
2. Obtaining a passport
(1) Draw up a prospectus that, in form and content, complies with the
requirements of the Prospectus Directive and the Prospectus
Directive Regulation.
(2) Apply to the competent authority of its home state
(3) For EU issuers, the home state is the Member state in which their
registered office is located.
(4) Issuers from third countries are also entited to a passport in respect of any
prospectus that has been approved by the issuers home state. The home
state is the Member State where the securities are intended to be offered
to the public for the first time or where first application to admission to
trading on a regulated market is made, at the choice of the issuer.
(5) Once a prospectus is approved, it has Community scope
(6) The home state must, if so requested, notify host state authorities with a
certificate of approval attesting that the prospectus has been approved in
accordance with the Prospective Directive and with a copy of the
prospectus, (and translation of the summary)
(7) Language rule: in homes state language accepted by competent
authority or a language customary in the sphere of international finance
In host member state: only require the summary be translated into its
official languages.
3. Public Oversight of EU prospectus requirements: ensuring cross-border
supervisory consistency
(1) Oversight of prospectus takes place at a national level and is primarily the
responsibility of the issuers home state securities regulator
(2) Host state finds irregularities, it must refer these findings to competent
authority of the home state. If irregularities persist, host state can itself
take all the appropriate measures in order to protect investors
(3) leave little room for differing interpretation: Prospectus
Directive Regulation applies directly in Members States without the need
for transposition via a domestic instruments; (2) national agencies retain
oversight responsibilities but a supranational institutional framework has
been put in place to foster convergence in the way that they perform the
tasks. ESMA
4. EU-level supervision of capital market activity: a brief overview of its
development from 2000
1. Lamfalussy Process: new structure for rule-making and supervision of
securities market activity involving four levels:
Level 1: primary legislation decided upon by the council and parliament,
Prospectus rules
Level 2: implementing measures, or more detailed rules: Prospectus
Directive Regulation

Level 3: a drive towards consistent implementation and transposition of


legislation
Level 4: greater emphasis on monitoring and enforcement
Listing Requirements and Concessions for Foreign Issuers
Only Equity shares are eligible for premium listing on LSE Main Market, subject
to onerous continuing obligations including corporate governance requirements;
comply with provisions regarding offering pre-emption rights to existing
shareholders
Cross-border Share Issuance Activity without a PassportMaking use of
Exemptions in EU Law
1. The option of a full retail offer to investors in the home market which
is accompanied by a prospectus, combined with an exempt wholesale
offer to professional investors in other countries, may thus continue
to hold consideration attraction.
2. Exemption:
addressed solely to qualified investors
Fewer than 150 natural or legal persons per Member State, other
than qualified investors

Qualified
investors:
professional
clients
and
eligible
counterparties
Subsequent resale of securities to which an exemption applied is
regarded as a peparate offer and may require a prospectus
unless an exemption applies
A retail cascade(whereby securities are sold first to an
intermediary, such as an investment bank, and then onto retail
distributors) does not require a separate prospectus so long as a
valid prospectus is available and the issuer or the person
responsible for drwing up the prospectus has consented to its
use.
A Brief Transatlantic Comparison
1. Broadly similar:
Trigger extensive disclosure requirements
Listed issuers are subject to an array of demanding regulatory
requirements
These requirements are modified in certain respects for foreign issuers
There are numerous exemptions from the general disclosure and other
requirements that, among other things, facilitate international offerings of
securities targeted at sophisticated investors who can fend for
themselves
2. US:
US Securities Act of 1933, s5: public offer or sale of any security in USA
need
Registration statement with respect to that security filed with
the SEC has become effective and delivery of a prospectus forming

a part of such registration statement accompanies confirmation of the


sale
Foreign private issuers use SEC form 20-F for their original registration
and for subsequent annual filings and Form6-K for other periodic
filings.
Since 2008 foreign issuers have been permitted to use IFRS to satisfy
financial reporting requirements. Certain other requirements of the US
securities regulatory regime are also modified for foreign issuers.
Sarbanes-Oxley 2002corporate governance matters. (senior
officer certification of financial status, independent audit committees,
audit partner rotation and auditor oversight)
Originally enacted, treated domestic and foreign companies in the
same way but accommodations had to be made in order to avoid
conflicts.
Even so, compliance with the Sarbanes-Oxley Act remains a concern
for foreign issuers. The enhanced regulatory burdens associated with
Sarbanes-Oxley are regarded by many as a factor that has
undermined the attractiveness of a US listing for foreign issuers.
a foreign private issuer is eligible to terminate its Exchange Act
registration and reporting obligations regarding a class of equity
securities if the US average daily trading volume of the class of
securities has been no greater than 5 per cent of the average
daily trading volume of that same class of securities on a worldwide
basis during a recent 12-month period and certain other conditions
are met.
Exemptions from the section 5 registration requirements
Regulation
S
and
Rule
144a
https://ilyaross.wordpress.com/2013/05/24/securities-law-memoreg-s-vs-rule-144a/

Sales of securities outside the US (Regulation S)


Private Placements (4(a)(2)and Regulation D)
Resales to qualified institutional buyers (rule 144A)
Regulation S: Sales and resales outside the US:

the requirements of Regulation S are met, US registration


requirements will not apply. Regulation S does not affect the extraterritorial
application of the anti-fraud provisions of the US Federal securities laws
The effect of Regulation S is that for the purposes of the registration
requirements of the Securities Act of 1933, the terms offer and sale are
deemed to exclude offers and sales that occur outside the US.
(1) it is an off-shore transaction, and (buyer and seller outside
the US)
(2)there are no directed selling effort in the US
(advertisements reaching the US)
(3) further condition on the Regulation S safe harbor for primary
offertings, whether there is substantial US market interest
US IPO:
1. SEC registration
2. The securities act 1933 and disclose all information which may
influence the investors decision on whether to buy the shares

3. the securities exchange act 1934: continuous disclosure


4. a description of the business of the issuer and the anticipated
business plan of the issuer; US GAAP
US private placement
SEC issued Rule 144A. exempts from registration requirements
resales to qualified institutional buyers (QIBs) of securities issued in a
non-public offering that are not of the same class or fungible with
securities listed or quoted on a US national securities exchange or
automated inter-dealer quotation system and certain notice and
informational requirements are fulfilled.
Rule 144A allows non-US person qualified
institutional buyer
Rule 144A
safe harbor 1933
144A
QIB 144A regulation S

Regulation S
Rule 144 A
Section 4 (a)(2)
often
Subject matter
offers and sales Securities of US Most
of securities will and
foreign used where the
be deemed by the issuers not listed sponsor or the
SEC to occur on a securities company
are
outside of the exchange
or aware of a few
United States
quoted on a US US
investors
automated inter- are not QIBs
dealer quotation but who would
system
like
to
purchase
shares in the
IPO
BASIC
(1)
offshore re-sale
of Less
REQUIREMENT transaction
securities can only advantageous:
S:
(2)no directed
(1) Need
to
selling efforts be made to
Collect
1.
qualified
connection
investor
institutional
letters
buyers
(2) The need to
(QIBs),
2. Securities
limit
the
issued in a
number
of
non-public
invesotrs
for
offering
legal
and
3. Securities are
not of the
risk
same class or
managemen
fungible with
t reasons
securities
listed
or (3) Tight
restrictions
quoted on a
US
national

securities
exchange or
automated
inter-dealer
quotation
system

on
resale
other
than
those made
outside the
US

QIB:
A QIB is
(a) an institution that owns and invests on a discretionary basis at
least US$100 million in qualifying securities (US$10 million if the
person is a US broker-dealer), or
(b) an entity owned by a QIB, or
(c) a US broker-dealer buying as agent for, or in a riskless principal
transaction
for
resale
to,
a
QIB.
In addition, banks and savings and loan associations with a net worth
of at least US$25 million are also QIBs.
Regulation D

Rule 10b-5 liability under the exchange act of 1934 is the basic antifraud provision of the federal securities law. It prohibits fraudulent
devices, schemes, and practices and also misstatements/omissions of
material facts (but negligence is not enough). It gives rise to a private
remedy in the hands of injured investors
Rule 144A
1. The time consuming process and costs associtated with SEC
registration
2. The ongoing US periodic reporting requirement
3. Potential US GAAP reconciliation requirements
4. The applicability of Sarbanes Oxley

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