Regulation S high-yield issuers in Asia should
disclose information to a Rule 144a standard and pay close
attention to their email trails, lawyers have warned.
Market participants predict Regulation S high yield
deals to become more common this year. But it is expected that
deals under Rule 144a would eventually become the market
Asian companies are generally hesitant when it
comes to disclosure requirements but investors are not willing to look down the yield curve for
lower-grade investments without substantial information.
Latham & Watkins Bryant Edwards said
Asian companies were reluctant to open the kimono,
and do the disclosure.
Speaking at Asia Securities Industry &
Financial Markets Associations (Asifma) and Latham &
Watkins high-yield conference last week he said
high-yield opened a bridge to enormous sources of capital
throughout the world. Once Asian companies are willing to open
up, there are significant benefits.
Michael Dakin of Clifford Chance compared Asian
investors expectations with those in Europe. In Europe,
Regulation S and Rule 144A are shorthand for a disclosure
regime, he said.
In Europe we used to have a largely
Regulation S driven market, but I would say 95% or more of the
deals done in Europe are under Rule 144a, Dakin added.
Its driven by a buy-side that sees Rule 144a as the
disclosure standard, even if the issuer isnt looking at
However, others said that there wasnt an
enormous distinction between the two disclosure regimes in
One panelist said that theres very little
distinction between disclosures for Regulation S and Regulation
S/Rule 144a deals in Asia. He added that although there is no
10b-5 opinion required under Regulation S it would be
superfluous because of the work done to otherwise meet the 144a
However, for now Regulation S-only deals remain
popular. Last week China Overseas Land & Investment (Soho China)
priced its Regulation S $1 billion offering, which included
Asias first 30-year notes.
Maintaining an electronic
Counsel also recommended that market participants
think of e-mail as an electronic record of the deal.
Skaddens Alec Tracy, said that in a world
with e-mail, there is a long and somewhat fact record of a
transaction, depending on whats been discussed on e-mail
and what was discussed in conference calls and meetings.
This record cant be deleted and the
e-mails are discoverable and can be used in court, he
said. We try to make sure that if an issue is discussed
in the e-mail record, a follow-up e-mail or another written
record is also created showing how the issue was
Furthermore panelists said that this extensive
documentation of the due diligence process will become a
process in Europe and Asia. However it will not be applicable
in the US, where underwriters worry most about civil liability
from lawsuits so market practice has been to keep very limited
In Hong Kong and similarly in London, civil
litigation is rare. But local regulators are now requiring the
banks to keep a comprehensive diligence record for some kinds
of transactions, such as intial public offerings (IPOs).
In the future both EU and Asian regulators
will want to see a full record for all offerings, said a
For more please attend IFLRs Asia Capital
Markets Forum this Thursday, November 15. More details can be
found here: http://www.iflr.com/ACM2012
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