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Amid an uproar over a decline in foreign initial public offerings on US bourses, dozens of overseas companies are quietly heading for the exits.
About 35 foreign firms have voluntarily announced plans to delist their stocks from US exchanges since April, according to US regulatory filings.
The companies say multiple accounting standards, Sarbanes-Oxley compliance, low trading volume and a new rule that eases requirements to deregister shares with US regulators all contributed to their decisions to delist.
But their departures also highlight how much trading activity US investors have taken overseas as global markets have improved.
US investors, it seems, have grown less fond of the 80-year-old American depositary receipt (ADR), which is widely used to trade foreign stocks in the United States, and instead are exhibiting a growing preference to buy stocks directly in local markets abroad.
"The benefit of coming here has decreased, and the costs have increased with litigation and regulation, so they're making a trade-off to get out of here," said Hal Scott, a Harvard Law School professor and director of the Committee on Capital Markets Regulation, which has spearheaded complaints about the decline in foreign IPOs.
Some of those delisting from US exchanges are well-established, global names like British Airways and French food group Danone. Others, such as Japanese insurer Millea Holdings, are ending decades-old listings. Millea said yesterday that it would drop a depositary programme it began in 1963.
Most companies said they would continue to allow their shares to trade in the over-the-counter market, but they will no longer be forced to comply with the requirements of the New York Stock Exchange, the Nasdaq or the US Securities and Exchange Commission.
"US capital markets represent sort of the blue-ribbon market in terms of governance standards around the world for companies," said Andrew Karolyi, a professor at Ohio State University's Fisher School of Business.
"These companies are basically packing up their shop and going home ... I wonder, are they being short-sighted?"
The recent flurry of delistings compares with just two companies who said they would voluntarily deregister their shares from April to early July last year.
Part of the reason for the surge may be pent-up demand. Until recently, most overseas companies suffered from the so-called Hotel California problem where, as in the 1970s hit song, they could check out any time but never leave.
That was until US regulators changed the rules in March, under pressure from the European Association of Listed Companies.
Now, instead of having to reduce the number of US residents holding a company's ordinary shares or ADRs to fewer than 300, a company may deregister if its daily US trading volume has been less than 5 per cent of its worldwide daily trading volume for the last 12 months.
"Now that these companies who are here have a choice, they're leaving," Harvard Law's Scott said.
Many more may qualify to leave, according to a study of cross-listed firms from 24 countries by Karolyi and University of Utah professors Shmuel Baruch and Michael Lemmon.
The study found the average developed-market ADR does 17 per cent of its global trading volume in the United States, but that figure is far lower for several countries. The professors found ADRs from Japan, Italy and Switzerland do only 2 per cent or 3 per cent of their global trading volume in the United States, on average.
Among the companies that have announced US delistings since April, most were from Britain, followed by Australia and France.
Most said specifically that the costs of maintaining a listing outweigh the benefits, and some even specified what they were gaining by leaving. British paint and adhesive maker Imperial Chemical Industries said it expected cost savings of US$8 million from deregistration.
Several of those leaving complained that International Financial Reporting Standards and US Generally Accepted Accounting Principles were too similar to keep complying with both, despite the Securities and Exchange Commission's plan to accept IFRS in 2009.
Many companies also said they would continue to meet the regulations of their home markets, and tried to reassure investors about the strength of their corporate governance.
"The positive elements from the Sarbanes-Oxley Act will continue to form part of TNT's approach to governance," Dutch delivery firm TNT said in its filing, without specifying which elements were "positive".
- Reuters
