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SarbOx Isn't Really Driving Stocks Away


The U.S. capital marketsare being suffocated by regulation. So argue politicians from both parties, who have joined forces in the past year with various business groups to bolster American competitiveness. In town meetings, op-ed pieces, and industry gatherings, they have attacked the Sarbanes-Oxley Act of 2002 and other corporate reforms for driving companies away from U.S. stock exchanges to other, more business-friendly locales.

The statistics, however, paint a somewhat different picture. It turns out that a record number of non-U.S. companies are flocking to NYSE Euronext (NYX) and NASDAQ to make their initial public offerings. So far this year, 22 companies, many from China and Israel, have raised nearly $4.4 billion on U.S. exchanges, according to Thomson Financial (TOC). That's more than even the first half of 2000, when 17 foreign companies collected nearly $4.2 billion. If the pace continues, the foreign IPOs will handily surpass the record $10.9 billion raised last year by 34 companies.

The conventional thinking is that Sarbanes-Oxley's tough restrictions on corporate audit practices and internal controls will lead foreign companies to list elsewhere. But companies such as RRSat Global Communications Network Ltd. (RRST) aren't being frightened off. When the $43 million-a-year Israeli provider of services for TV and radio systems shopped for a place to take its stock public, it bypassed Tel Aviv and London in favor of NASDAQ. (NDAQ) The company, which went public seven months ago, came to the U.S. partly because of--not despite--the regulatory requirements. "It's positive for the company," says Gil Efron, RRSat's chief financial officer. "It supports the confidence of the shareholder in the [financial] reporting by the company, and it improves [our] internal processes."

To be sure, the less regulated London market is attracting its share of foreign IPOs, too. So far this year, the London Stock Exchange has helped 12 non-British outfits raise nearly $18 billion on its main market, according to Thomson. Last year, 16 non-British companies raised $22.7 billion on the main market. The LSE's alternative market, where small companies that generally wouldn't qualify for U.S. listings go, has clocked 19 non-British IPOs so far this year, raising nearly $2 billion.

But London has an edge over New York in that its time zone is much closer to those in Russia and Eastern Europe, two IPO hotbeds that have accounted for five of London's offshore-based IPOs, raising nearly $5.6 billion this year. London banks and investors have much more expertise in these regions than New York has. Where the geographical playing field is level--Chinese listings, for instance--New York is strong and getting stronger. What's more, whereas the Chinese have long tapped British investors by way of Hong Kong, now they're keen to solicit American money. "They're saying: 'We don't need to bother with London," says G. Andrew Karolyi, a finance professor at Ohio State University who closely tracks the exchanges.

Indeed, for Chinese entrepreneurs especially, qualifying for a U.S. listing is a badge of honor. Ten of this year's offshore-based IPOs on U.S. markets so far are from China, up from seven in all of last year. NYSE Euronext "provides us access to high-quality investors worldwide," says Ma Tao, vice-president of investor relations for Qiao Xing Mobile Communication Co. (QXM), a maker of mobile handsets that raised $160 million on the New York exchange in May.

Critics of U.S. regulations still argue that the IPO surge could be even stronger if the stringent rules were eased. "Sarbanes- Oxley is an issue in every single listing," says Skadden, Arps, Slate, Meagher & Flom lawyer Michael V. Gisser, who works with Asian companies on going public. "There is reason to be concerned," adds John A. Thain, chief executive of NYSE Euronext, who has long pressed for change. But, he concedes, "we're still doing pretty well."

By Joseph Weber, with Xiang Ji in Hong Kong


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