WSJ: Foreign Firms Bailing Out

This morning’s WSJ has a disturbing story on C1. It looks like more foreign-based stocks are being scared off by Sarbanes-Oxley:

This month, the Securities and Exchange Commission opened the door for foreign companies to bail out of their U.S. stock listings. Next year, several fed-up companies will indeed bolt.
More worrisome is that fewer firms want to list here to begin with. That’s bad news for individual investors looking to buy the best foreign companies: In the future, they may find their options getting narrower.
At the center of all this: Sarbanes-Oxley. That 2002 legislation put tougher accounting rules on U.S. companies — and applies to many foreign ones. Basically, any foreign firm with more than 300 U.S. shareholders must use these rules.
Foreign companies lobbied to be excused from the rules, and the SEC apparently has relented. It has proposed allowing foreign companies to deregister with the SEC if they meet certain thresholds, such as U.S. investors owning no more than 5% of the stock.
Not that many foreign firms should exit if this proposal, as expected, becomes official. Cathleen McLaughlin, who represents several foreign companies as a partner at Allen & Overy in New York, expects only a couple dozen companies to take the SEC up on its offer.
Those that do, she says, will be primarily lesser-known Latin American and Asian companies that don’t have active trading in their U.S. shares anyway. In the 1990s, many companies sought the prestige associated with a Big Board or Nasdaq listing. But for some, the trouble and costs of complying with Sarbanes-Oxley now outweigh the benefits of a U.S. share.
Yet if popular names like Nokia and Toyota Motor are sure to stay, the tougher U.S. regulations may be deterring the latest crop of foreign companies from listing here in the first place. Many are turning instead to the rival London Stock Exchange, where regulatory burdens are considered less onerous. In 2000, foreign companies raised $16.9 billion in new listings in New York and London, with the U.S. claiming 89% of that total, Citigroup says. This year, London grabbed 88% of that business.
Most companies opting for the U.K. also have entered the U.S. private-placement market, which lets them sell a dollar-denominated U.S. security without being accountable to Sarbanes-Oxley or SEC regulations. More bad news for the little guy: These unlisted shares are available only to professional fund managers.

Posted by on December 23rd, 2005 at 6:08 am


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