Latest analysis by Deloitte has shown that over a third of global depository receipt (GDR) issuers have highlighted financial control weaknesses in their listing prospectuses.  Last year a record-breaking £11.6 billion was raised through GDRs, compared with £8.9 billion raised through equities. 

John Hammond, capital markets partner at Deloitte, commented: “Over a third of GDR issuers disclosed either material weaknesses or limitations in their internal controls last year yet they are exempt from the protective corporate governance requirements of Primary Listings on the Main Market.  GDRs are, for example, exempt from applying the Combined Code.  We believe there is a worryingly common misconception that GDRs are governed in the same manner as the Primary Listings.  As the GDR market has raised nearly 25% more than equities, it is not surprising that the listing regime is being reviewed by the FSA.  We predict that financial advisers, mindful of the disparity in standards, will tighten risk controls of their own volition by aligning their due diligence more closely with that of a Sponsor on Primary Listings.”

The official list requirements waived for GDRs are:

• The Combined Code in relation to corporate governance is not applicable;
• There are no formal financial reporting requirements;
• No working capital statement needs to be provided.

John Hammond, continued: “The increasing popularity of GDRs in London has been driven by Russian and Kazakhstan placements, which constituted nearly half of all issues in 2007.  We expect the emerging markets’ activity will continue to grow in 2008 and 2009 as India and South America follow the Russian lead and use the market to raise international capital to fund economic building blocks such as infrastructure and oil and gas.  In such a growth market, it is important that concerns over financial strength are not overlooked.”

For further information on supporting tables, download our press release A third of GDR issuers report weak financial controls. (PDF, 180KB)

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Notes to editor:
The Deloitte analysis comprised a review of the GDR Prospectuses of all issuers in 2007 to identify those that indicated a risk factor relating to the quality of their internal controls or financial reporting.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other's acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.