Emerging Market Issuers still under Spotlight

Despite the scrutiny placed by Australian regulators over Emerging Market Issuers (EMIs), fund raising in Australia remains appealing and the lodgement of prospectuses by EMIs over the last six months only increased.

At the ASIC Corporate Finance Liaison Meeting held in February 2018, ASIC reiterated its heightened vigilance over the disclosures by EMIs.

The roles of Independent Accountants

Consistent with its inquisitorial approach to date, ASIC is placing emphasis on the role Advisors play in the listing of EMIs.  Where independent accountants are concerned, ASIC is focusing on the extent of work being carried out.

ASIC may review the working papers of the independent account to determine whether adequate work had been performed, including the review of the audit work papers by the local auditor.

Where the case warrants, ASIC is of the view that the independent accountant may need to re-perform some, or all, audit procedures for the financial information, including, inquiry, observation and analytical procedures and tests of details.

New Accounting Standards

With three new accounting standards coming into force over the next two years, which are expected to impact significantly on the reporting of revenue, value of financial instruments, loan loss provisions and lease arrangements, issuers and advisors are advised to prepare disclosure of historical and prospective financial information with care where the scope of report overlaps with the implementation dates of these accounting standards.

Observation over listed companies that “failed”

ASIC recently undertook a study of listed companies that “failed”. In this instance, the term “fail” is defined as ‘large loss, i.e. 80% decline, in share price’ since listing’. In its study, ASIC found that, among other things, EMIs made up a large proportion of these companies and exhibited signs of poor corporate governance practices.

Listing on NSX

With ASIC and ASX both placing scrutiny over EMIs, many EMIs have sought listing on the NSX.  Whilst the listing requirements on NSX is less onerous, NSX conducts investigations on EMIs to ensure that the applicants conduct genuine operation, have definitive connection with Australia, and have sound corporate governance practice. Specifically, there is a focus on the directors of the Issuers to be of good fame and character.

In conclusion

  1. Irrespective of your choice of listing exchange, Australian regulators and listing bodies are vigilant of EMIs.
  2. Any EMI applying to become listed on an Australian exchange should proactively address the issues and concerns of ASIC, ASX and NSX.
  3. Any advisors to EMIs should understand the elevated expectation that Australian regulators place on them when involved in the listing application and preparation of financial disclosures of EMIs.

Please contact  Stephanie Wen to discuss how Macpherson Kelley may assist you with your fund raising.

This article was written by Stephanie Wen, Senior Associate – Commercial and was published on March 5 2018.  

Macpherson Kelley communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from communication. Persons listed may not be admitted in all States and Territories.