The U.S. JOBS Act and non-U.S. companies: changes to the offering process and compliance challenges
By Robert Evans, Thomson Reuters Accelus contributing author
NEW YORK, May 8 (Thomson Reuters Accelus) – In April 2012, the U.S. securities laws changed significantly with the Jumpstart Our Business Startups Act, also known as the JOBS Act. The JOBS Act is deregulatory, easing some of the rules for companies seeking to access the U.S. capital markets. The offering process for SEC-registered IPOs is changing as a result and the U.S. Securities and Exchange Commission staff is working on further rule changes. Publicity restrictions will be eased for private placements and Rule 144A offerings. Offerings of up to $50 million will be exempted from registration. These changes pose interesting compliance challenges.
NON-U.S. COMPANIES ACCESSING U.S. CAPITAL MARKETS
Non-U.S. companies accessing the public U.S. equity capital markets for the first time after December 8, 2011 may benefit from the JOBS Act changes. To qualify, a company must have annual revenues of less than $1 billion. Issuers in this new category are called emerging growth companies (EGCs). The most significant changes to the securities offering process for EGCs include:
- Communications: A company making a public offering in the United States and its underwriters are strictly limited by the U.S. Securities Act of 1933 in their ability to communicate about the offering. No offers, written or oral, are permitted before a registration statement is filed with the SEC. Only oral offers, or offers made with a compliant prospectus, are permitted after filing but before the registration statement is declared effective. Under the JOBS Act, EGCs, directly or through representatives they authorize, may now test the waters with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs). That is, without violating the pre-filing and waiting period restrictions, they may communicate with those potential investors to gauge whether they might be interested in an SEC-registered securities offering.
- EGCs and underwriters that test the waters remain subject to potential securities law liability for those communications, including for any material misstatement or omission. As a result, issuers and investment banks are likely to be cautious in testing the waters. Communications will be oral (which can include use of slides or flip books that are not left with investors). If written materials are used, they will likely be limited to information from the registration statement. Because the JOBS Act creates a limited carve-out to the Securities Act restrictions on communication, there will be compliance challenges. For example, market participants will need to ensure that testing the waters communications are limited to QIBs and IAIs and only used in offerings by EGCs. Also, investors may have to agree to treat information confidentially to avoid market abuse and selective disclosure concerns.
- Confidential submission of registration statements: In December 2011, the SEC staff severely limited access to confidential submission of registration statements, which had been available to all first time non-U.S. issuers that qualified as foreign private issuers. The JOBS Act gives that access back to issuers that qualify as EGCs prior to pricing of their first SEC-registered sale of equity securities. EGCs are required to include the initial confidential submission and all confidentially submitted amendments as exhibits to a publicly filed registration statement no later than 21 days before the road show. The December 2011 SEC staff policy still allows some non-U.S. issuers to confidentially submit draft registration statements if they meet the conditions outlined in the policy and either are not EGCs or do not take advantage of any benefit available to EGCs. Draft registration statements submitted confidentially must be substantially complete at the time of initial submission, including exhibits and a signed audit report covering the fiscal years presented in the registration statement.
- Financial statements and selected financial data: An EGC need only provide two years of audited financial statements in its initial public offering of common equity securities registered with the SEC, rather than the three years that are generally required. Instead of five years of selected financial data, an EGC need only present selected financial data for periods beginning with the earliest audited period presented in its IPO registration statement. Although the JOBS Act only refers to the disclosure rules for U.S. domestic issuers, EGC foreign private issuers may follow these reduced disclosure requirements.
- Research reports: The JOBS Act makes it easier for investment banks to write research reports about EGCs. Pre- JOBS Act and under the current rules for non-EGCs, underwriters in an IPO cannot publish research in advance of the IPO or during a 40-day quiet period after pricing and may not publish research for 15 days before and after the release or expiration of any lock-up agreement. There are also restrictions limiting contact between bankers and research analysts designed to separate investment banking from research in investment banks.
The JOBS Act:
- exempts broker-dealer research reports on EGCs before, during or after common equity offerings of an EGC (including an IPO) from being considered an offer or a prospectus under the Securities Act;
- permits broker-dealers to write research on EGCs after their IPOs (so no 40-day quiet period) and before the expiration of IPO lock-up agreements; and
- allows research analysts to communicate with management in connection with the IPO of an EGC even if investment bankers are present.
PREVIEW-Rulemakers plan global overhaul of lease accounting
By Emily Chasan
NEW YORK, Aug 15 (Reuters) – U.S. and international accounting rule makers are planning to propose an overhaul of lease accounting as soon as Tuesday, in a move expected to affect some $1.2 trillion in leased assets.
It looks like Plan B for accounting convergence
Full convergence of US and international accounting standards appears to be some way off, and while International Accounting Standards Board member Philippe Danjou is still aiming to achieve Plan A – meeting the G20 deadline of full convergence by mid-2011 – a compromise Plan B is clearly being prepared, John Manley writes. (more…)
IASB: single set of accounting rules on track
By Huw Jones
LONDON, March 16 (Reuters) – The world’s top accounting bodies are on track to thrash out a common set of rules by the middle of next year, the International Accounting Standards Board said on Tuesday.
The G20 group of countries set the ambitious deadline last year to make it simpler for cross-border companies and investors but differences over how to value some complex assets have raised concerns about the timetable.
Last month the U.S. Securities and Exchange Commission said it would commit to a new work plan that would delay any move to international standards until at least 2015.
The IASB, whose rules are used by listed companies in over 115 countries, including the European Union but not the United States, said it has stepped up meetings with its U.S. peer, the Financial Accounting Standards Board.
“In our soon to be published report, the Boards will state that despite the challenging technical issues to resolve, we remain on schedule to achieve the June 2011 target,” IASB Chairman David Tweedie told EU finance ministers in a statement made available to the media.
“These intensive discussions are achieving positive results. We plan to publish seven joint proposals in the next quarter. The Boards individually will also propose other changes to bring their own standards in line with each other,” Tweedie said.
Global accounting body told to improve governance
By Huw Jones
LONDON, Feb 8 (Reuters) – The world’s most influential accounting rule setter is not answerable enough to users or the public and must improve its governance further, top financial regulators said on Monday.
International Accounting Standards Board (IASB) rules are used in over 100 countries, including the European Union, with Canada, Japan and Brazil adopting them as well. The United States, however, is still mulling its position.
The IASB will become more powerful next year when its rules form the basis for a single set of global standards as called for by the G20 group of countries, sparking calls for the London-based body to be more accountable and transparent.
David Wright, deputy head at the EU’s European Commission internal market unit, welcomed the creation of a separate board of public authorities, including the EU executive, to monitor the IASB but more improvements were needed.
“We feel there is much work to be done. The debate about …governance will continue because it’s unfinished,” Wright told a Commission hearing on accounting and auditing.
Getting the governance right was necessary to “depoliticise” accounting standard setters, Wright said.
INTERVIEW-Plan B may keep accounting convergence on track – IASB
By Huw Jones
LONDON, Jan 18 (Reuters) – A patch-up solution to keep the goal of a single global accounting system on track may be needed due to differences over how standard setters are reforming a rule blamed for amplifying the credit crunch.
Two rival accounting systems could feature extra disclosures allowing analysts to make comparisons between different fair value rules, the chairman of the International Accounting Standards Board (IASB), David Tweedie, told Reuters Insider.
The G20 group of leading countries has set a mid-2011 deadline for converging the world’s main accounting rules.
It is a long-time goal of multinational companies which want to cut red tape and would also make it easier for international investors to compare companies from different countries.
Two of the world’s top standard setters are reforming their fair value or mark-to-market rule which requires banks to value some assets at the going rate. It led to huge writedowns at the height of the credit crunch, sparking calls in Europe to curb its scope.
The IASB has begun changing its fair value rule in a move which UBS analysts say will reduce its use. The U.S. Financial Accounting Standards Board (FASB), however, has signalled it wants to broaden the scope of its fair value rule.
Global accounting rule-setter proposes quicker booking of bad loans
By Huw Jones LONDON, Nov 5 (Reuters) – A global accounting standard setter published on Thursday a second leg of proposals to replace its fair value rule that was criticised by policymakers for amplifying the credit crunch.
U.S. SEC to review accounting rules roadmap
By Huw Jones BASEL, Switzerland, Oct 8 (Reuters) – The U.S. Securities and Exchange Commission will review by the end of the autumn its milestones for possible adoption of a global set of accounting rules, its chairman Mary Schapiro said on Thursday. (more…)
EXCLUSIVE-U.S., global differences over fair-value accounting can be reconciled – IASB chief
By Emily Chasan NEW YORK, Oct 6 (Reuters) – Proposed changes to mark-to-market accounting rules are likely to look similar on both sides of the Atlantic in the end, despite a current controversy about how far to expand the rules, the top global accounting rulemaker said.
International accounting board rejects U.S. “fair value” rule plans
By Huw Jones LONDON, Sept 30 (Reuters) – The top accounting rule setter said on Wednesday that U.S. plans to widen the scope of a rule blamed for amplifying the credit crunch was unacceptable, raising doubts over a 2011 deadline for a global set of accounting rules.
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