The Australian Securities and Investments Commission (ASIC) has identified that language and cultural barriers are one of the key risks for emerging market issuers which need to be addressed during the initial public offering (IPO) due diligence stage.
ASIC released the “Further review of emerging market issuers” report in which the regulator discussed its views on emerging market issuer activity and how ASIC responded to the key challenges identified in Report 368 which described the impact of such entities on the overall integrity of the Australian market.
ASIC found that generally, emerging market issuers who sought to list on the Australian market and to raise capital from retail investors could pose a heightened risk to the market’s reputation if the issuer was not appropriately managed and would fail to comply with Australia’s legal and regulatory regime.
The report found that one of the key issues for emerging market issuers were cultural and language barriers.
ASIC said that for example, in some cases there were no evidence of prospectuses and directors’ questionnaires having been translated into Chinese for non-English speaking directors or where Chinese material contracts and agreements were not translated into English which, according to ASIC, would raise further questions about how the non-Chinese proficient directors were able to ensure the information contained in the prospectus was accurate.
ASIC also identified a number of challenges to good corporate governance faced by emerging market issuers, which included geographically scattered boards with limited financial resources, complex ownership structure due to foreign legislative requirements and reliance on key individuals who were located in Australia.
Issuers from Asia, mostly from China, represented the greatest number of all listings, with 46 of 57 new listings being from Asia and only a small number of African, Pacific Island and European based issuers.
In some cases, ASIC also said I had taken formal action against entities for poor corporate governance.
Additionally, the report revealed that there was one instance where firms marketed the IPO of an emerging market issuer to investors based on factors that were not connected to the merits of the individual IPO.
“The report reminds issuers and gatekeepers of the importance of their obligation and responsibility to comply with the Australian regulatory regime when raising capital in our markets,” ASIC said.
“ASIC will continue to consider risks associated with emerging market issuers through our day-to-day responsibilities.”
