The Australian Securities and Investments Commission (ASIC) Report 368 Emerging Market Issuers has been prompted by a number of high-profile collapses overseas, including the bankruptcy of Canadian-listed Sino-Forest in 2011.
In September 2012, US regulators found that 67 foreign-based issuers had their auditors resign, and 126 issuers had either been de-listed from US securities exchanges or had ‘gone dark’.
When it comes to Australia, the ASIC report found there were 760 emerging market issuers among the approximately 2,100 entities listed on the ASX in November 2012.
Fifty-eight per cent of those companies had a market capitalisation of less than $50 million, and Asia Pacific was the largest emerging market targeted.
The ASIC report identified a number of challenges faced by Australian emerging market issuers that could affect investors.
Companies that have their operations spread around the world may find it difficult to implement good corporate governance – as well as effective internal controls and risk management systems.
In addition, overseas laws could end up limiting the ownership of assets by foreign entities, ASIC found.
‘Key person risk’ could become a factor when one or two individuals are located outside Australia, which “raises the risk of substantial transactions benefiting those individuals”, according to the report.
Finally, it may be difficult for an Australian-listed company (or its auditor) to verify information or opinions about the entity’s operations provided by people based overseas, said ASIC.
ASIC commissioner John Price said the regulator was “shining a light” on emerging market issuers in order to lift the sector’s transparency.
“We want investors to be confident and informed when putting their money in these companies,” said Mr Price.
