Arzu Cevik from Thomson Reuters’ Corporate Advisory Services group discusses the world of 144As.
Transcript:
The 144A Revolution
Hello, I’m Arzu Cevik and welcome to this week’s strategic research presentation, dedicated to the world of 144As………
Raising capital has become a major challenge for many companies but the 144A market remains a major lifeline between the U.S. capital market and issuers around the world. Non-U.S. companies can also trade in this market via Global Depository Receipts (GDRs).
Rule 144A was adopted by the SEC in order to increase the efficiency and liquidity of the U.S. market for securities listed in private placements.
There are a number of key features.
Once placed with eligible investors, they cannot be sold in the U.S, public market for at least 2 years.
144A securities can only be bought by Qualified Institutional Buyers (QIBs) who do not need to register their shares.
Each QIB must have at least $100m in ets under management and
Finally, Each 144A security must have no more than 500 QIBs as shareholders.
As for the benefits, when it comes to raising capital, the 144A market is both faster and cheaper compared to U.S. public markets.
While an IPO can take around 25 weeks to complete, a 144A listing can be accomplished in just 10 weeks.
Meanwhile, companies like to use the 144A market as a stock valuation tool before embarking on an Initial Public Offering.
The other key benefit is the ability to trade without being subject to Sarbanes-Oxley and SEC disclosure and regulation.
In today’s environment, many observers have indicated that the cost burden has now overshadowed the financial benefits of regulation.
Our analysis of the non-U.S. component of the 144A market over the last five years suggests that-
•The total value of equity raised has more than doubled to $5.5bn in 2007 from $2.3bn in 2003 (with $11.7bn raised in 2006).
•On a regional level, GDRs from Central & Eastern Europe (mostly Russian) dominated activity (68%) in 2007. Over a five year period, North Asia had the highest average (48%).
•Over the years, there has been a shift in demand from North Asia (mostly from Korea & Taiwan) to Central & Eastern Europe.
•Sector analysis suggests that in 2007, the real estate sector dominated activity (31%), followed by banks (30%). Over a five year period, TMT had the highest average (21%). closely followed by banks (16%).
The 144A market is undoubtedly growing in popularity. This can be attributed to onerous Sarbanes-Oxley legislation, resulting in higher regulatory costs and litigation risk for those companies who wish to raise capital from the U.S. public market.
Consequently, the number of foreign company delistings has more than doubled from 12 in 1997 (representing just 3.9% of all foreign listed companies) to 30 in 2006 (6.6% of all foreign listed companies).
Finally, confidence in the 144A market has been expressed by the major underwriters who have addressed the issue of insufficient pricing and liquidity fragmentation with the development of their own trading systems.
Furthermore, there has been consolidation between NASDAQ and 12 investment banks under a “Portal Alliance” umbrella, with the goal of developing an industry standard facility in order to serve the market for 144A securities.
For more information about 144As, please contact your CAS representative.
Thanks and have a great day.
Duration : 0:3:50
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