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Foreign private issuers
9.2 Direct equity share listing
Cleary Gottlieb Steen & Hamilton LLP
As discussed in Section 9.1, most foreign
issuers that list equity in the United States
do so using ADRs. ADRs were developed to
facilitate custody and settlement for U.S.
investors and the U.S. clearing system.
A foreign private issuer may also list
its shares directly on the NYSE without
employing ADRs. This is common for
Canadian companies, and major Dutch,
German and Israeli issuers have also done
so. An issuer that lists shares directly needs
to establish a share registry system that
effectively permits its shares to be quoted,
traded and settled in the United States
in U.S. dollars. To allow U.S. clearing and
settlement without the intermediation
of a depositary, the usual approach is to
appoint a U.S. registrar that coordinates
with the home country registrar using a
continuously updated two-way electronic
link between clearing systems. The
mechanics can be complex, and the cost
and time required to work them out can be
a deterrent, especially for the first issuer
to make these arrangements from a given
jurisdiction.
9.3 Description of IPO process timeline
Cleary Gottlieb Steen & Hamilton LLP
Every IPO is different, but most follow
a broad pattern that breaks down into
four phases. An aggressive but reasonable
timeline might take 20 weeks: eight weeks
to prepare materials for submission to the
SEC, eight weeks to complete SEC review
and then make a public filing, three weeks
for marketing and a week to price and close
the IPO.
Several factors typically affect the
length of the timeline. If the issuer will be
dual-listed, the most important of these
factors is the coordination of non-U.S.
requirements with U.S. requirements,
although with most non-U.S. regulators
and exchanges there is ample precedent
for managing this coordination. Another
important factor is how much time the
issuer and its auditors take to develop
the information required by U.S. rules,
especially financial statements that meet
SEC requirements and an audit report that
meets PCAOB standards. This can extend
the first phase substantially.
(a) Phase one—preparation
During the first phase, the principal task
is to prepare a draft registration statement
on Form F-1. This includes the preliminary
prospectus, which will be the principal
document used to market the offering to
investors. If the issuer is already listed
in its home jurisdiction, the prospectus
can draw on material the issuer already
prepares for home-country reporting
purposes, but the U.S. prospectus often will
be quite different from what the issuer has
previously published. If the issuer is going
public in two jurisdictions at the same
time, the coordination of the preparation
process to address requirements in both
jurisdictions, and sometimes in two
languages, can be challenging.
Unlike authorities in many other
jurisdictions, the SEC requires an issuer to
file its material contracts and certain other
documents as exhibits to the registration
statement, and these exhibits are publicly
available. One priority for the first phase
is to identify required exhibits and
determine whether making them public
presents any difficulties.
The issuer should also use the
preparation period to familiarize itself
with the ongoing requirements applicable
to companies registered with the SEC and
to confirm the readiness of its reporting
and compliance systems.
The underwriters will typically use
this period to conduct much of their due
diligence, which includes management
presentations, review of documentation
and often other steps as well.
Other items of documentation can be
addressed during the preparation phase
or later. These include working with the
NYSE on listing qualifications, selecting a
depositary and negotiating arrangements
with it, preparing the separate registration
statement on Form F-6 for the ADRs and
negotiating the underwriting agreement.
(b) Phase two—SEC review
Following the preparatory phase, the
issuer submits its substantially complete
registration statement to the SEC
for review and then responds to SEC
comments, with the assistance of its
U.S. counsel and its auditors. The SEC
comment process can involve extensive
back-and-forth discussion between
the issuer and the SEC staff and the
submission of successive amended
registration statements. For a domestic
U.S. issuer other than an emerging growth
company, the successive versions of the
registration statement are publicly filed.
Most foreign issuers, however, go through
the SEC review process on a confidential
basis, without making the registration
statement public at that time or disclosing
that it has been submitted. (Confidential
review is discussed in Section 9.5(a),
below.) For a foreign private issuer that
pursues a confidential review, the initial
public filing usually occurs after the
resolution of most or all SEC comments.
During the SEC review period, the
issuer and the underwriters also prepare
for the roadshow, developing a roadshow
presentation and itinerary. If the issuer
qualifies as an emerging growth company
under the JOBS Act (see Chapter 4),
limited premarketing (often called “testing
the waters”) is permitted before the
registration statement is filed, although
this has not yet become common practice.
Otherwise, marketing does not begin
until after the initial public filing of the
registration statement.
(c) Phase three—marketing
The marketing period begins after the
registration statement has been publicly
filed, which is ordinarily after SEC
comments have been resolved. If the
issuer’s shares are not already trading
(in its home market, for example), a
price range for the offering must also be
established before full marketing begins.
The marketing phase often takes two
or three weeks. It involves distributing the
preliminary prospectus and conducting a
roadshow with prospective investors based
on an elaborate roadshow presentation.
As marketing proceeds, the underwriters
gather nonbinding indications of interest
from investors—a process known as
“bookbuilding.” After the conclusion of the
roadshow, the issuer and the underwriters
ask the SEC to declare the registration
statement effective, which is required
before the shares can be sold to investors.
(d) Phase four—pricing and closing
The bookbuilding process culminates in
the pricing of the IPO, when the issuer
(and any selling shareholder) agrees with
the underwriters on the offering price and
102 NYSE IPO Guide