On December 8, 2011, the US Securities and Exchange Commission (the "SEC") announced significant changes to its long-standing policy with respect to the confidential, paper submission of initial registration statements by foreign private issuers ("FPIs"). Effective immediately, the SEC staff of the Division of Corporation Finance (the "Staff") will review initial registration statements submitted by foreign issuers on a confidential basis only if the registrant falls within one of the following categories1:
- A foreign government registering its debt securities;
- An FPI that is listed, or is concurrently listing its securities, on a non-US securities exchange;
- An FPI that is being privatized by a foreign government; or
- An FPI that can demonstrate that a public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction.
This change effectively means that FPIs conducting an IPO only in the United States will now have to file their registration statements publicly via the EDGAR system. This requirement applies to future amendments to registration statements that are currently under review by the SEC, although the SEC will continue to review confidential submissions received prior to December 8, 2011. It should be noted that the December 8 statement does not change the other benefits that FPIs receive as a result of that status.
The SEC notes that circumstances may develop in which the Staff will request a foreign issuer to publicly file its registration statement even if it falls within the general parameters of the new policy. The SEC does not go into detail about what circumstances may give rise to such a request but states that it may be requested in connection with a competing bid in an acquisition transaction or when there is public disclosure about a proposed offering or listing.
Prior to this SEC statement, the SEC's Division of Corporation Finance allowed all FPIs to submit to the Staff registration statements and amendments on a confidential basis in connection with their first-time registration in the United States. This allowed the Staff to review and comment on disclosure, and the issuer to respond to Staff comments, before filing publicly. A public filing typically occurred shortly before the launch of the roadshow with nearly all comments previously addressed confidentially with the Staff. Those comments and the prior drafts of the registration statement were not filed publicly even after the IPO.
The SEC previously stated that the confidential review policy afforded to FPIs was due to the Staff's recognition that foreign registrants often have special transparency concerns in connection with a public SEC review process, such as when a foreign registrant's securities trade publicly in its home market and the company would be making new and different disclosures as a result of SEC registration. The SEC noted in its December 8 statement that the vast majority of FPIs using the confidential review procedure did not and were not contemplating a listing outside the United States.
The December 8 statement makes it clear that the SEC has not abandoned all aspects of its historical recognition of the special transparency concerns that can be present for FPIs. Specifically, category number two above addresses this concern by permitting FPIs listed or concurrently listing securities on a non-US securities exchange to continue to submit to the Staff on a non-public basis. As a result, for example, registrations of underlying securities under the Securities and Exchange Act of 1934 (the "Exchange Act") in the case of a Level II ADR program or under the Securities Act of 1933 (the "Securities Act") in the case of a Level III ADR program will still have the ability to submit to the Staff registration statements and amendments on a non-public basis in connection with their first-time registration.
An FPI that is now required to file its registration statement and amendments publicly will also need to consider the following: (i) the SEC filing fee will need to be paid upon the initial filing of the registration statement, which will require an assumed offering size to be disclosed on the registration statement cover, (ii) the FPI will be an "issuer" under the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), and therefore, any personal loans to directors and executive officers must be repaid before the initial filing pursuant to Section 13(k) of the Exchange Act as added by Section 402 of Sarbanes-Oxley, and (iii) the safe harbor for communications provided by Rule 163A under the Securities Act will end 30 days prior to the initial filing of the registration statement.
In the past, FPIs routinely submitted their first-time registration statements on a non-public basis. Given the SEC's new limitations on non-public submissions from FPIs, it is uncertain whether FPIs will seek in the future to list concurrently on a non- US securities exchange in order to be able to take advantage of the confidential submission process.
1 - The SEC's statement states that shell companies, blank check companies and issuers with no or substantially no business operations will not be permitted to use the non-public submission procedure.
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