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Regulation S

Reg S Offerings

Reg S offerings are typically referred to as “Offshore Offering” because they mainly have to either do with a foreign company creating an offering, or an US company that is offerings its debt or equity overseas, i.e. outside the United States. A Reg S offerings is typical of many European offerings and the larger clearing firms in Europe, often grant access to their systems via a Regulation S offering. Memorandum can assist in drafting the necessary Reg S paperwork and ensure that your offering is properly structured.

Regulation S

What is Regulation S? Regulation S is a “safe harbor” that defines when an offering of securities is deemed to be executed in another country and therefore not be subject to the registration requirement under section 5 of the 1933 Act. The regulation includes two safe harbor provisions: an issuer safe harbor and a resale safe harbor. In each case, the regulation demands that offers and sales of the securities be made outside the United States and that no offering participant (which includes the issuer, the banks assisting with the offer and their respective affiliates) engage in “directed selling efforts”. In the case of issuers for whose securities there is substantial U.S. market interest, the regulation also requires that no offers and sales be made to U.S. persons (including U.S. persons physically located outside the United States).

A Reg S (also called Regulation S) bond or stock cannot be sold, delivered or offered within the United States. In addition, they cannot be for the benefit or account or on behalf of U.S. citizens, unless in conformance to an exemption from, or in a business deal not subject to the Securities Act’s registration requirements. As mentioned above, Reg S has several restrictions for residents of the U.S.

In the past, stocks sold under Reg S can be offered in the United States only to qualified institutional buyers,
or QIBs, in reliance on Rule 144A. As a matter of fact, QIBs are one of the only groups allowed to make investments on Reg S offerings.

Reg S offers an exclusion from the registration requirements under section 5 of the Securities Act of 1933 for offerings made by U.S. and foreign issuers outside the U.S. A public or private securities offering made outside of the U.S. by an issuer in reliance on Regulation S does not require registration under the Securities Act. The safe harbors for Reg S are non-exclusive, which means that issuers who attempt to abide by Reg S may also claim from registration the availability of another pertinent exemption.

Debt and Equity Offerings in Reg S

Both debt and equity securities (such as stocks or bonds/notes) are available to be offered under Reg S. Regulation S is made available outside the United States, and must be  offered in good faith and not because the registration conditions within the rules of Reg S want to be sidestepped. The availability of the resale (Rule 904) and the issue (Rule 903) safe harbors is dependent on 2 general provisions: the sale or offer should be made in an offshore deal; and issuers or distributors and all of their affiliates or individuals acting on their behalf are not allowed to make ‘directed selling efforts’.

Reg S creates standards pursuant to which particular companies are allowed to carry out their initial public
offerings outside the United States without the need to register under the U.S. Securities Act. One of these provisions is that companies must have sufficient defensive measures in place to guarantee that investors from the U.S. do not buy their securities during the ‘distribution compliance period’, which is generally a 1- to 2-year period.

Since Reg S is a U.S. securities Act restriction, companies that have a need to conform to such directive should seek proper advice from a seasoned consultant like

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