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Cross Border IPOs
When a foreign company decides to expand its horizons and wants to go public in the United States, this is considered a “cross-border initial public offering,” or “cross-border IPO.” Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. One option is to take the form of a depository receipt to minimize transaction costs and increase settlement efficiency. Because of factors such as language barriers, currency conversion, and different regulations, cross-border IPOs are often complex and challenging transactions. This five page white paper explores the issues and challenges faced by a foreign company when "going public" in the United States, the advantages and disadvantages of a cross-border IPO, how to execute a cross-border IPO, and an example of a foreign company that has successfully executed this strategy. When a foreign company decides to expand its horizons and wants to go public in the United States, this is considered a “cross-border initial public offering,” or “cross-border IPO.” Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. The foreign issue may also be listed on its home exchange or on more than one exchange in several different countries. It may even take the form of a depository receipt to minimize transaction costs and increase settlement efficiency.1 Because of factors such as language barriers, currency conversion, and different regulations, cross-border IPOs are often complex and challenging transactions. This white paper explores the issues and challenges faced by a foreign company when going public in the United States, the advantages and disadvantages of a cross-border IPO, how to execute a cross-border IPO, and examples of foreign companies that have gone public on the United States Stock Exchange. Issues Faced with Cross-Border IPOs When a foreign company decides to go public in the United States stock market, there are many issues that must be dealt with. Before even having the option of going public in the U.S., a company must determine if they qualify as a foreign private issuer or not. The company will not be considered a foreign private issuer if U.S. residents hold more than 50% of its voting securities, if the majority of chief officers are U.S. residents, they hold more than 50% of their assets in the U.S., or if the business is administered primarily in the U.S. While financial statements do not have to be in accordance with Generally Accepted Accounting Principles (“GAAP”), the company must reconcile its accounts with GAAP. It would behoove a company to initially present its financial statements in accordance with GAAP because potential investors will be able to better understand this format. It is important to realize that Rule 144 will restrict resale of issued and outstanding securities that have not been registered for resale and have been issued to U.S. persons (the prevailing view is that shares issued by foreign companies to non-U.S. investors will not generally be subject to Rule 144 holding periods). If the foreign company needs to obtain shareholder approval for any reason in connection with the IPO (e.g., to authorize shares for issuance), it may have to grant registration rights to certain large U.S. shareholders in order to secure their consent to the offering. Because the company and any foreign shareholders will not generally be liable for suit in the United States, the underwriters will want to ensure that they can sue the company and its shareholders. A general requirement is to appoint a CT Corporation to act as resident agent for service of process in the U.S. jurisdiction where lawsuits might be filed. [continued...] Want to know more? Download the White Paper "Cross Border IPOs" for just $49.95. People who ordered this paper also ordered: |
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