Magazine article Global Finance

The Americas: Sarbanes-Oxley Act Chills ADR Issuance

Magazine article Global Finance

The Americas: Sarbanes-Oxley Act Chills ADR Issuance

Article excerpt


Capital raisings using American depositary receipts remain weak, amid sluggish markets for equity offerings in general. Market participants now have something new to worry about.The Sarbanes-Oxley Act of 2002, passed in response to the recent accounting scandals in the United States, imposes strict new disclosure and corporate governance requirements, which attorneys say will apply to most non-US issuers.

ADR market participants say the requirements could discourage some foreign companies from accessing the US capital markets.

"With the markets as weak as they are, this could be the last straw for some issuers," says Walter Van Dom, partner at Thacher, Proffitt & Wood in New York. "The act substantially increases the regulatory obligations and increases the reporting burden."

Chief executives and CFOs of non-US companies will have to certify their annual 20-F filings with the Securities and Exchange Commission and will be subject to severe penalties if they slip up. In many cases, foreign companies will have to establish audit committees to comply with SEC rules.

Attorneys say many of the "best practices" imposed by the new US law already have been implemented by top international companies. They add, however, that the Sarbanes-Oxley Act will have far-reaching effects. Foreign companies that have listed securities on a US exchange or on a US trading system, such as Nasdaq, or that have made a public offering in the United States will be covered by the new law. …

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