Hot Topics in International Listings
ABA Section of International Law
April 5, 2006
Speakers
 Georges Ugeux
 Paul Dudek
– Galileo Global Advisors
– Securities and Exchange
Commission
 Annemarie Tierney
 Michael Gans
– New York Stock
Exchange
– Blake, Cassels &
Graydon
 Crispin Waymouth
 Nicolas Grabar
– European Commission
– Cleary Gottlieb Steen &
Hamilton
2
The Hot Topics
 How real are the business advantages of
multiple listing?
 How serious are the practical challenges for
multi-listed companies?
 Will regulators act to foster multiple listings?
 Easing deregistration: does it work? Will it lead
to more or less multiple listing?
 Is multiple listing on its way out?
3
Outline
 Costs and benefits of U.S. listing for foreign
issuers
 The U.S. exchanges and international listings
 EU regulator’s perspective
 The SEC approach to cross-border listings
 A Canadian perspective
 Practical challenges for issuers
4
Cost/benefits of U.S. listing
Georges Ugeux
Galileo Global Advisors
Cost/benefits of U.S. listing: the initial
benefits
 Financial considerations
– Access to the largest pool of capital
– Increasing liquidity of the stock
 Strategic considerations
– Acquisition currency
– Credibility with customers
– US labor force
 Branding considerations
– Seal of Approval
– Visibility on the US markets
6
Costs/benefits of U.S. listing: financial
considerations
 The globalization of the US equity markets
happened on the wheel of the European
privatizations: foreign private issuers needed the
US capital market to place their shares
 Two things happened
– The trading volume was disappointing
– The European and Asian markets improved their liquidity
and most IPOs could be placed in Europe, Japan or Hong
Kong
 While the pool of capital is still the largest in the
world, the interest of US investors has been
limited to some sectors and some countries
7
Costs/benefits of U.S. listing: strategic
considerations
 The acquisition currency remains a key attraction
but
– It is limited to companies acquisitive in the US
– It is limited to stock acquisitions rather than cash
– US investors are increasingly accepting non registered
shares (Reg S, 144A…)
 A US listing is still of great commercial use
 Only companies with large workforce in the US
do it for stock options and share programs
8
Costs/benefits of U.S. listing: branding
considerations
 The seal of approval
– US corporate scandals have seriously tarnished the value
of that seal of approval
– US GAAP are no longer considered a better system as
IFRS becomes the international norm
 The visibility
– A US listing remains an exceptional PR operation
– It sends a message of global ambitions
9
Cost/benefits of U.S. listing: the costs
 The application of Sarbanes Oxley to foreign private
issuers completely changed the legal framework
 The costs associated with the formalistic approach to
accounting and controls of the PCAOB are unbearable for
medium sized companies
 The post 9/11 “anti terrorist” measures increased the
compliance costs
 The advantage of foreign listings for acquisitions have
been seriously challenged by protectionist attitudes in the
United States
10
Costs/benefits of U.S. listing: what needs to
be done?
 The Exchanges need to rethink their trading model for
foreign private issuers
– Get rid of the ADR fragmentation
– Improve the trading volume by reviewing the trading system
applied to foreign private issuers
 The regulation must be amended in two directions
– A clear and reasonably easy exit strategy (in process)
– Accepting the equivalency of some foreign practices for the
purpose of US listing
– Conflicts of law must favor domestic laws and regulations
 Nothing will happen unless IFRS is recognized in the US
as acceptable (2009)
11
Costs/benefits of U.S. listing: conclusion
 The cost/benefit analysis has substantially
weakened the advantage of a US listing for a
non-strategic issuer with a well developed
domestic capital market
 The US market will continue to be attractive to
companies whose domestic markets are
underdeveloped
 Most actively traded and strategic companies will
remain listed
12
Cross Border Listings:
The Perfect Storm
Anne Marie Tierney
New York Stock Exchange
Foreign Private Issuers are Increasingly
Choosing Not to Register in the United States
 From 2000-2002, NYSE averaged 48 international
listings per year.
 From 2003-2005, that average declined to 18.
 In 2005, only one of the 25 largest IPOs in the
world chose to register and list in the United
States.
14
Capital Raising Developments
 In 2005, 224 non-US IPOs raised US$ 86 billion
in the U.S. capital markets.
 94% of these offerings ($80.5 billion) included a
Rule144A tranche. 75% ($60.5 billion) of the
proceeds were raised outside the home market.
 153 of the 189 companies that had a Rule 144A
tranche listed on their home market, 11 listed on
LSE and 20 listed on HSE.
15
Rule 144A
100
$Billions
(Global Value
Raised)
100 %
90
90
80
70
80
60
50
70
40
60
30
20
50
10
0
40
1999
173
2000
2001
263
Total number of IPOs
53
52
57
144A IPO Value
2002
SEC Registered IPO Value
Source:, Dealogic, Bloomberg, Exchanges
16
2003
2004
2005
142
224
144A as % of Total Value Raised
Trading
 In 2005, US investment in non-U.S. equities
reached a record $2.8 trillion (18%) up from $1.2
trillion (10%) in 1997.
 During the same period, the NYSE share of nonU.S. listed global trading fell to 14%, down from
30% in 1997.
17
Trading
 In 2005, NYSE non-U.S. trading reached a record volume of 40.877 million shares
representing 10.3% of the NYSE average daily volume.
 NYSE share of global trading was flat since 2002 but has declined significantly
since 1996.
45
40
35
35%
30%
25%
30
25
20
15
20%
15%
10%
10
5
0
5%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Volume (bn)
Source: NYSE
ADRs Outs. (bn)
18
% of w/w trading
Listings Competition
 A recent survey published by the LSE indicates that 90%
of foreign companies that considered listing on a US
exchange felt that the demands of SOX made listing on
the LSE more attractive.
 The NYSE is increasingly competing with the LSE and
HSE for emerging market listings (in Russia and China
particularly), while local exchanges are increasingly listing
domestic global IPOs.
19
Listing Competition
600
500
400
300
200
100
0
1997
1998
1999
NYSE
Sources: WFE, Exchanges
2000
2001
LSE
NASDAQ
20
2002
Hong Kong
2003
2004
2005
25 Largest IPOs in 2005
Company
China Construction Bank Corp - CCB
Electricite de France SA - EDF
Gaz de France
China Shenhua Energy Co Ltd
Bank of Communications
PartyGaming plc
Goodman Fielder Ltd
Premiere AG
Sistema
Raiffeisen International Bank-Holding AG
Huntsman Corporation
Kazakhmys plc
SUMCO Corp
Vakifbank
China Cosco Holdings Co Ltd
Societe des Autoroutes du Nord et de l'Est de la France - SANEF
Spark Infrastructure Fund
RHM plc
Telenet NV
EFG International
SP AusNet Ltd
TrygVesta AS
Eutelsat SA
Jupiter Telecommunications Co Ltd
Novatek
Total Value
9,226,737,293
9,031,958,079
5,465,451,630
3,271,726,748
2,160,872,439
1,658,300,000
1,593,933,743
1,560,953,642
1,556,828,550
1,455,154,168
1,385,227,302
1,351,673,386
1,339,534,884
1,286,094,675
1,225,425,950
1,222,013,291
1,197,277,318
1,179,272,497
1,125,847,967
1,096,608,169
1,062,365,032
1,024,851,334
1,009,034,382
1,007,526,650
966,304,150
21
Exchange
Hong Kong
Paris
Paris
Hong Kong
Hong Kong
London
Australian Stock Exchange; New Zealand (Wellington & Auckland)
Frankfurt
London; Moscow; Portal
Vienna
NYSE
London
Tokyo
Istanbul
Hong Kong
Paris
Australian Stock Exchange
London
Brussels
Geneva
Australian Stock Exchange; Singapore
Copenhagen
Paris
Tokyo OTC
London; Moscow
Listings Competition
LSE (Main Market) 2005
Company
Telecom Egypt
Frutarom Industries
Evraz Group SA
Pyaterochka Hldg N.V.
Amtel Vredestein NV
Bank Muscat
Sistema JSFC
Novatek OAO
Novolipetsk Iron and Steel Corp
Investcom LLC
UTI Bank
Kumho Tire Co Inc
Country
Egypt
Israel
Russia
Russia
Netherlands
Oman
Russia
Russia
Russia
Un.Emirates
India
So.Korea
Wwide Mkt Cap ($mm)
5,053
460
6,711
2,570
684
1,942
11,290
7,894
9,529
4,610
1,979
1,215
IPO Value ($mm) 144A
591
X
57
X
422
X
585
X
223
X
161
1,354
X
927
X
624
X
759
237
X
266
Country
China
China
China
China
China
China
China
China
China
China
China
China
Wwide Mkt Cap ($mm)
4,525
21,819
24,079
2,891
2,954
837
838
846
85,508
470
1,022
2,501
IPO Value ($mm) 144A
648 X
3,279 X
2,166 X
1,227 X
294 X
126 X
224 X
152 X
9,231 X
117 X
241 X
589 X
Hong Kong SE 2005
Company
Shanghai Electric Group Company Limited
China Shenhua Energy Company Limited
Bank of Communications Co., Ltd
China COSCO Holdings Company Limited
Guangzhou R&F Properties Co., Ltd
AAC Acoustic Technologies Holdings Inc
China Yurun Food Group Limited
China Paradise Electronics Retail Limited
China Construction Bank Corporation
Shenzhou International Group Holdings Limited
Parkson Retail Group Limited
Dongfeng Motor Group Company Limited
Sources: NYSE, Dealogic, Exchanges
22
The Perfect Storm
 Sarbanes-Oxley internal control compliance costs.
 Perceived increased liability.
 Lack of accounting convergence.
 Significant increase in Rule 144A offerings.
 Increased depth of home markets.
 Heightened delisting/deregistration interest.
 Foreign companies increasingly do not need the
 US public markets to satisfy their capital needs.
23
An EU regulator’s perspective
Crispin Waymouth
European Commission
An EU regulator’s perspective
Three issues
I. The Financial Services Action Plan 19992004
II. Financial Services Policy 2005-2010
III. The EU-US Financial Markets Regulatory
Dialogue
25
An EU regulator’s perspective
The EU Single Market
 EU passport
– Right of establishment (branching)
– Freedom to provide services
 Harmonisation of rules
– Prudential requirements
– Consumer/investor protection
 Cooperation/Information sharing
26
An EU regulator’s perspective
Commission makes formal
proposal
European
Parliament
Council of
Ministers
Agreement reached on
Directive/Regulation
27
An EU regulator’s perspective
I. Financial Services Action Plan
 Tackling barriers to cross-border investment:
– UCITS, Pension Funds, Collateral, Clearing and Settlement, Take
Over Bids
 Giving investors adequate information:
– International Accounting Standards, Prospectuses, Disclosure
Requirements
 Strengthening the supervision of companies and markets:
– Corporate Governance Codes, Auditor Independence
Recommendation, IAS, Capital Adequacy Framework, Market
Abuse, Financial Conglomerates
 Tackling all three: MIFID
28
An EU regulator’s perspective
Lamfalussy Approach
Level 1: Broad Framework Principles in
Directive/Regulation
Level 2: Implementing Rules delegated to
Commission, assisted by ESC and CESR
Level 3: Strengthened Co-operation between
Regulators to Improve Implementation
Level 4: Strengthened Enforcement of Community
Law
29
An EU regulator’s perspective
II. Financial Services White Paper
December 2005
 “Dynamic Consolidation” based on:
– Removing remaining economically significant barriers;
– Implementing, enforcing and continuously evaluating
existing legislation;
– Enhancing supervisory cooperation and convergence,
deepening financial relations with other global financial
marketplaces.
30
An EU regulator’s perspective
III. EU-US Financial Markets Regulatory
Dialogue
 Key EU-US issues for issuers:
 Accounting Standards;
 Deregistration;
 Sarbanes-Oxley/8th Company Law Directive
31
SEC’s Approach to Cross-Border
Listings
Paul Dudek
Securities and Exchange Commission
SEC’s Approach to Cross-Border Listings
 Until 1970’s / 1980’s, no distinction
 But, exceptions from proxy rules and Section 16
 Exchange Act registration exemptions
– Rule 12g3-2(a) – 300 US holders
– Rule 12g3-2(b) – information submission
 Case-by-case approach on disclosure and
accounting
33
SEC’s Approach to Cross-Border Listings
SEC Registered Foreign Companies
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
1600
1400
1200
1000
800
600
400
200
0
34
SEC’s Approach to Cross-Border Listings
1970’s & 1980’s –
 Growing Internationalization of the Securities
Markets
 Nasdaq Exclusion
 FPI Forms and Integrated Disclosure
 U.K. Privatizations
 1988 SEC Study
35
SEC’s Approach to Cross-Border Listings
 “The legislative history of the Securities Act
indicates an intent to treat foreign private issuers
… the same as domestic issuers.”
 “The Commission has generally perceived its
function as neither discriminating against nor
encouraging foreign investment in the United
States or investments in foreign securities.”
36
SEC’s Approach to Cross-Border Listings
Two competing policies:
 Investing public needs same type of basic
information for an investment decision, whether
the issuer is foreign or domestic.
 Interests of the public are served by an
opportunity to invest in a variety of securities,
including foreign securities.
37
SEC’s Approach to Cross-Border Listings
1990’s:
 Increased issuer interest in the U.S. capital
markets
 SEC accommodations to facilitate access
– Choice of currency, some IAS accepted, reduced
reconciliation, MJDS
 But core disclosure and financial statement
requirements remain
38
SEC’s Approach to Cross-Border Listings
Where Are We Today?
 Deregistration
 IFRS
39
SEC’s Approach to Cross-Border Listings
 Internet Bubble
 U.S. Scandals and Sarbanes Oxley Act of 2002
– Apply letter and spirit of the law to foreign issuers
– But with targeted accommodations
40
Canadian Perspective
Michael Gans
Blake, Cassels & Graydon
Canadian Perspective
 Access of U.S. capital markets by Canadian issuers
strong since implementation of MJDS in 1991
– Approximately 200 Cdn based inter-listed issuers
– Trading is roughly 50:50 (US:Cdn exchanges, volume and value)
– Also Exxon AB offerings
 More recently, U.S. issuers accessing Canadian capital
markets
–
–
–
–
–
–
still relatively few
removal of foreign property limits in Canada
strong demand for yield product in Canada
resource-based issuers looking at TSX
Quebec translation requirement remains problematic
Regulation S also problematic
42
Canadian perspective: MJDS southbound
 Effectively allows eligible Canadian issuers to
prepare and file registration statements and offer
and sell securities in the U.S. on basis of
Canadian regulatory regime
– Must be a foreign private issuer with $75 m market cap
– Remains subject to SEC review, but unusual
– Remains subject to civil liability and anti-fraud provisions of
1933 Act and 1934 Act
 Periodic reporting also on basis of Canadian
forms under cover of 6-K and 40-F
 Reconciliation to U.S. GAAP when using F-10
43
Canadian perspective: U.S. issues for
Canadian issuers
 Litigation environment always a concern,
additional divergences with SOX
 Section 404
– becomes applicable to foreign private issuers that are
accelerated filers for financial years ending after July 15,
2006 (remaining foreign private issuers for financial years
ending after July 15, 2007)
– Canadian regulators have adopted CEO and CFO
certification of effectiveness of internal controls and
disclosure of conclusions (financial years ending on or after
December 31, 2007) but will not require internal control
audit opinions
 Prohibition of issuer loans
44
Canadian perspective: U.S. issues for
Canadian issuers
 Corporate Governance
– Canadian regulators have adopted corporate governance
guidelines and disclosure requirements
– Where an issuer does not comply with a particular
recommended practice, the issuer must explain how it
addresses the objective of the recommended practice
– Audit committee independence
– narrower range of relationships to be considered when
evaluating independence than comparable NYSE rule
45
Canadian perspective: U.S. issues for
Canadian issuers
 Securities Offering Reform
– Only eligible issuers reporting under 10K or 20F (not 40F)
eligible for WKSI status
– Canadian regime quite responsive, so lack of automatic
registration not overly harmful
– Shelf system remains available
– Use of electronic roadshows requires relief in Canada
– Canadians starting to look at AIM
46
Canadian perspective: foreign issuers in
Canada
 Broad reporting exemptions generally available if reporting in
another major jurisdiction
 Generally used for debt offerings, including guaranteed debt of
subsidiary finance companies, and exchangeable share
companies
 Foreign reporting issuer
– incorporated outside Canada, unless more than 50% of shares are held in
Canada and one or more of:
– more than 50% of assets in Canada, or
– business principally administered in Canada
 SEC Foreign Issuers
– foreign reporting issuer
– Class of securities registered under section 12 of the 1934 Act or
reporting under section 15 of the 1934 Act
– not an investment company
47
Canadian perspective: foreign issuers in
Canada
 Designated Foreign Issuers
– Reporting in Australia, France, Germany, Hong Kong, Italy,
Japan, Mexico, Netherlands, New Zealand, Singapore,
South Africa, Spain, Sweden, Switzerland, UK or Northern
Ireland
– Canadian shareholding cannot exceed 10%
 Exemptions
–
–
–
–
–
Material change reporting
Financial statement reporting
Annual Information Form and MD&A reporting
Business Acquisition reporting
Proxy and proxy solicitation requirements
48
Practical challenges for issuers
Nicolas Grabar
Cleary Gottlieb Steen & Hamilton LLP
Practical challenges for issuers
 Financial reporting issues
– GAAP
– Non-GAAP financial measures
– Periodic reporting
 Communication with analysts and the market
 Disclosure of material developments
50
Practical challenges for issuers
 Corporate governance
 Trading by corporate insiders
– Trading policies
– Trade reporting
51
Practical challenges for issuers
 Share repurchase programs
 Corporate control transactions
 Offerings
–
–
–
–
–
Employee share programs
Rights offers
Fixed-income—twilight of the Luxembourg listing?
Single-regulator model vs. multiple-regulator model
Equity case studies—Brazilian, Russian and Chinese IPO
booms
52