The latest Asian high-yield disclosure trends explained

Author: Ashley Lee | Published: 14 Nov 2012
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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 standard.

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 Association’s (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. “It’s driven by a buy-side that sees Rule 144a as the disclosure standard, even if the issuer isn’t looking at US persons.”

However, others said that there wasn’t an enormous distinction between the two disclosure regimes in Asia.

One panelist said that there’s 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 standard.

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 Asia’s first 30-year notes.

Maintaining an electronic trail

Counsel also recommended that market participants think of e-mail as an electronic record of the deal.

Skadden’s Alec Tracy, said that in a world with e-mail, there is a long and somewhat fact record of a transaction, depending on what’s been discussed on e-mail and what was discussed in conference calls and meetings.

“This record can’t 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 addressed.”

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 records.

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 panelist.

For more please attend IFLR’s Asia Capital Markets Forum this Thursday, November 15. More details can be found here: http://www.iflr.com/ACM2012

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