Transcript Slide 1

Comparative Analysis of
UK Listing Regimes for
Equity and GDRs
Mark M. Banovich
Moscow Office Managing Partner
London Stock Exchange Conference on
Financing Real Estate through IPOs
19 February 2008
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Summary
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Theory behind multiple listing regimes
Overview of requirements
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Oversight
Disclosure
Corporate governance
Corporate actions
Market abuse and inside information
Periodic reporting
Miscellaneous continuing obligations
Specialist issuer obligations
FSA Discussion Paper
Theory
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One size does not fit all:
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Retail Investors (e.g., primary equity listing, AIM admission)
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No substantial relationships with market participants and therefore dependent
upon the rules to ensure that issuers make the necessary information
available to them and address their concerns
Less sophistication and less ability to model around information gaps or to
properly discount for streamlined corporate governance
Even losses that are small in absolute terms can be financially devastating
Issuers should be held to higher standards when seeking capital from such
investors, because such investors may not be in a position to assess the
associated risks or properly discount share price
Professional Investors (e.g., GDR listing)
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Access to market participants to make their concerns known
Leverage to require the information they believe to be necessary
Sophistication necessary to value risks associated with a lower quantum of
information and streamlined corporate governance
Capacity to bear risk of loss
Issuers should be permitted to seek capital from such investors based on
lesser standards, because such investors can protect themselves by
discounting share price
Oversight
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Primary equity listing
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Sponsor provides assurance to FSA as to compliance with listing rules
and guides the issuer in understanding and complying with continuing
obligations
FSA approves a prospectus prepared under Annexes I-III of the
Prospectus Rules (“PRs”)
AIM admission
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Nominated adviser (“Nomad”) is responsible to LSE for assessing the
appropriateness of an applicant, and for advising and guiding an AIM
company on its continuing obligations
FSA oversight:
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FSA approves a prospectus under PR Annexes I-III in the case of an offer to
the public
Otherwise, an admission document is prepared without pre-vetting by FSA or
LSE
GDR listing
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No sponsor or nomad, but in practice investment banks undertake a
gatekeeper function in response to commercial pressures to improve deal
pricing and manage reputational and liability risk
FSA approves a prospectus prepared under PR Annex X
Disclosure
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Financial disclosure
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Historical financial information
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Pro forma and stand alone financials for significant gross change
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Primary: required
AIM: required in modified form
GDRs: not required, and unlikely to be included in the absence of a working capital report
MD&A and capitalisation table
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Primary: required
AIM: not required
GDRs: not required
Working capital statement
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Primary: 3 years, subject to an unqualified audit opinion
AIM: Lesser of 3 years or period of operations; audit may be qualified
GDRs: Lesser of 3 years or period of operations; audit may be qualified
Primary: required
AIM: not required
GDRs: required
Management disclosure concerning conflicts of interest, compensation and
benefits, and the composition of the audit and remuneration committees
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Primary: Required
AIM: Not required
GDRs: Required
Disclosure (continued)
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Disclosure in all three kinds of offerings is levelled by the presence of
a catch-all disclosure requirement:
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If a prospectus is prepared, it must contain “the information necessary to
enable investors to make an informed assessment” of the issuer and its
securities
An AIM admission document is subject to a similar standard, as it must
contain the “information the issuer reasonably considers necessary for
investors to form a full understanding” of the issuer and its securities,
taking into account the necessity of the information that would be
required for a prospectus had the issuer been required to prepare one
Corporate Governance
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Applicability of the Combined Code
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Primary:
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UK companies must comply, pursuant to the Companies Act
Overseas companies must:
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AIM:
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Disclose the significant ways in which their corporate governance practices differ
from the Combined Code
Disclose whether or not their corporate governance practices comply with
requirements in their home jurisdiction
No requirement to comply with the Combined Code or disclose differences
from the Combined Code
Nomads must assess the suitability of directors and the efficacy of the board
for the issuer’s needs, bearing in mind its admission to trading on a UK public
market
GDRs:
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Disclose whether or not corporate governance practices comply with
requirements in the home jurisdiction
In practice, investment banks will recommend that an issuer comply with
certain aspects of the Combined Code (such as director independence and
the establishment of an audit committee) in order to obtain a higher valuation,
which suggests that non-compliance is priced in by the market
Corporate Actions
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Notification and/or shareholder approval of certain
transactions
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Significant transactions, including reverse takeovers
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Related party transactions
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Primary: Vote required at 25% of assets
AIM: Vote required at 75% of assets
GDRs: Not required
Primary: Required
AIM: Management consultation with the nomad on large deals
GDRs: Not required
Discounted option arrangements for directors and employees
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Primary: Required
AIM: Not required
GDRs: Not required
Market Abuse and Inside Information
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Code of market conduct applies to all
Model code
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Primary: Issuer must comply and take all proper and reasonable steps to ensure
that persons discharging management responsibilities (“PDMRs”) comply
AIM:
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GDRs:
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Not applicable
AIM Rules for Companies impose restrictions on dealings by the issuer, its directors and
certain employees during close periods
Not applicable
Certain GDR issuers are becoming sensitive to the benefits of voluntary compliance
Disclosure and control of inside information
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Primary: DTR 2 requires public disclosure of inside information as soon as
possible, unless an exception applies, and maintenance of insider lists
AIM: AIM Rules for Companies implement continuing disclosure requirements and
exceptions broadly similar to those in the DTRs, but do not require companies to
keep insider lists
GDRs: DTR 2 requires public disclosure of inside information as soon as possible,
unless an exception applies, and maintenance of insider lists
Periodic Reporting
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Annual reports
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Primary:
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AIM: Report containing audited financials to be published within 6 months after end of
financial year
GDRs:
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Audited financials to be published within 4 months after end of financial year
Annual information update to FSA within 20 days after publishing annual financials
Half-yearly reports
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Audited financials, management report and responsibility statement to be published within 4 months after
end of financial year
Non-EEA issuers must provide an annual information update to FSA within 20 days after publishing
annual financials
Primary: Condensed financials, interim management report and responsibility statement to be
published within 2 months after end of the period
AIM: Report containing 6 month interim accounts to published within 3 months after the end of
the period
GDRs: Not required, but issuers that prepare interim accounts for their IPO prospectus create
a market expectation of interim reporting, which investment bankers may advise them to meet
Interim management reports
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Primary: To be published within 10 weeks after the beginning and 6 weeks before the end of
each half
AIM: Not required
GDRs: Not required
Miscellaneous Continuing Obligations
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Shareholder disclosure
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Primary: DTR 5 applies
AIM: AIM Rules for Companies may require disclosure of
changes to significant shareholders
GDRs:
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DTR 5 does not apply unless the shares underlying the GDRs are
listed on the Official List
GDR depositaries can require that ultimate beneficial owners provide
information as to their identity and holdings as a condition to
processing voting instructions.
Specialist Issuer Obligations
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Real estate company
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Inclusion of property valuation report in the prospectus
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Disclosure of significant property acquisitions or disposals
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Primary: Required
AIM: Not required
GDRs: Required if underlying shares have a denomination of less than
€50,000
Primary: Required
AIM: Not required per se, but general disclosure obligations may cover this
GDRs: Required
Real estate company structured as an investing company
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Primary: The listing regimes applicable to property investment
companies or property unit trusts may apply
AIM: The company must have an investing strategy that is disclosed in
detail in the admission document and is subject to annual shareholder
approval
GDRs: No material difference
FSA Discussion Paper
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The existing balance between the stringency of regulatory requirements and
the need for investor protection appears to be fundamentally sound
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Lesser requirements for AIM appear at first blush to be anomalous, but are
counterbalanced by the fact that AIM is advertised as a market for small start up
companies and by the quasi-regulatory role of the Nomad
Lesser requirements for GDRs are counterbalanced by the demands of investment
banks and their large customers
Investors need to know the benefits and limitations of the market where they
wish to trade
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The FSA Discussion Paper emphasis on proper labeling therefore appears to be
appropriate
An emphasis on monitoring and enforcement of the regimes already in place
would also be appropriate
It is less clear that it would be appropriate to introduce a sponsorship role or
change the substantive requirements for a professional market, where the need for
oversight and regulation is diminished. The principal result may only be to reduce
the range of risk-weighted choices available to companies and investors in the
London market.