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Reference is made to Frontline Ltd.’s (Frontline) application of the 26th March 2009 for certain U.S. laws and provisions relating to periodic financial reporting to be considered equivalent to the requirements contained in Commission Directive 2007/14/EC, articles 13,15 and 17, cf. the Norwegian Securities Regulation § 5-7. Reference also is made to the subsequent correspondence and Finanstilsynet’s (The Financial Supervisory Authority of Norway) meeting with Frontline and its advisors.
Frontline has applied for an exemption pursuant to the Norwegian Securities Trading Regulation (STR) section 5-7 a), c) and d). Frontline is a Bermuda-registered tanker company with Norway as its home state in accordance with the Norwegian Securities Trading Act (STA) section 5-4, as it is listed on the Oslo Stock Exchange. Frontline is also listed on the New York Stock Exchange, thus the company is obliged to prepare and file an annual report (Form 20-F ) (Note 1) with the Securities Exchange Commission pursuant to section 13 or 15 (d) of the U.S. Securities Exchange Act of 1934.
Equivalence assessment of the U.S. and Norwegian periodic financial reporting regime
Finanstilsynet has considered whether the U.S. periodic disclosure requirements are “equivalent” to the requirements contained in articles 13, 15 and 17 of Directive 2007/14/EC, cf. article 4 of the Transparency Directive.
As mentioned above, Frontline is obliged to comply with Form 20-F pursuant to section 13 or 15 (d) of the U.S. Securities Exchange Act of 1934. Pursuant to Form 20-F “General Instructions” section B subsection d), Note Regulation S-X applies to the presentation of financial information in a report.
In determining equivalence Finanstilsynet has adopted the test recommended by the Committee of European Securities Regulators (CESR) in its technical advice on the implementation of the Transparency Directive (Note 2), namely that equivalence “can be declared when the requirement under third country issuer’s laws, regulation or administrative provisions enables investors to make similar decisions as if they were provided with the requirement under the Transparency Directive ” (Note 3).
Pursuant to STR section 5-7 (a) an issuer from a country outside the EEA-area with Norway as its home state shall be deemed to fulfil the requirements mentioned in STA section 5-5 subsection (2) no. 2 where the issuer is required under the law of the third country to fulfil equivalent requirements as set out in Directive 2007/14/EC, article 13.
The relevant disclosure requirements in Form 20-F are found primarily in Item 3 Key Information: A. Selected Financial Data and D. Risk Factors, Item 4 Information on the Company: A. History and Development of the Company and B. Business Overview, Item 8 (b) Significant changes, Item 5 Operating and financial review and prospects, section market overview and trend information.
According to Finanstilsynet’s analysis of the above mentioned rules, the information required pursuant to article 13 must be included in Form 20-F. Finanstilsynet takes into account that the U.S. regime previously has been considered equivalent by other CESR members. An exemption according to STR section 5-7 (a) can be granted.
According to STA section 5-5 subsection (1) the annual financial report shall be made public at the latest four months after the end of each financial year. This requirement also applies to an annual financial report prepared according to the U.S. regime, if the issuer has Norway as its home state.
Pursuant to STR section 5-7 (c) an issuer from a country outside the EEA-area with Norway as its home state shall be deemed to fulfil the requirements mentioned in STA section 5-5 subsection (2) no.3 and section 5-6 subsection (2) no. 3 where the issuer is required under the law of the third country to fulfil equivalent requirements as set out in Directive 2007/14/EC, article 15. Due to Frontline’s application, Finanstilsynet has limited its assessment of the responsibility statement to the statement comprised in the annual financial report, cf STA section 5-5 subsection (2) no 3.
According to the U.S. regime, management is required to provide a certification pursuant to the Securities Exchange Act Section 13 or 15 (d) and 15d-14 (a). Instructions concerning this certification are found in Form 20-F Item 19 Exhibits, Instruction as to Exhibits. In addition management must file certification pursuant to 18USC (Note 4) Section 1350, in accordance with Section 906 of the Sarbanes-Oxley Act of 2002, see Form 20-F Item 15 Controls and Procedures (b).
In Finanstilsynet’s opinion, the above-mentioned situation fulfils the requirements under article 15. Finanstilsynet takes into account the fact that the U.S. regime for U.S. domestic issuers (Form 10-K) previously has been considered equivalent by other CESR members.
An exemption according to STR section 5-7 c), cf. STA section 5-5 subsection (2) no 3 can be granted.
Dispensation from individual accounts by the parent company
Pursuant to STR section 5-7 (d) an issuer from a country outside the EEA-area with Norway as its home state shall be deemed to fulfil the requirements mentioned in STA section 5-5 subsection (3) first and second sentences where the issuer is required under the law of the third country to fulfil equivalent requirements as set out in Directive 2007/14/EC, article 17.
The requirements pursuant to article 17 a) are that the issuer, in preparing his consolidated accounts, is required to include information on “dividend computations and ability to pay dividends”. Pursuant to Regulation S-X Rule 5-02 Balance Sheet and Rule 4-08 General notes to financial statements, Frontline has to account for its limitations to pay dividends and the company must submit a balance sheet in which the total equity capital is provided. Furthermore, according to Form 20-F Item 8, A.8, Frontline must describe the company’s dividend policy. Taken together, the requirements stated must give information, which in Finanstilsynet’s view is sufficiently equivalent. Finanstilsynet also takes into account that the information requirements pursuant to the Norwegian legislation related to individual parent company accounts, applicable for third country issuers, do not seem more extensive than the U.S. regime as described above.
When it comes to the requirement pursuant to article 17 b) regarding information on “minimum capital and equity requirements and liquidity issues”, where applicable, Finanstilsynet does not find that the requirements for minimum capital and equity requirements apply to Frontline due to its status as a tanker company. These requirements will likely apply to banks, insurance companies etc. with sector specific legislation. According to Finanstilsynet’s opinion, the “liquidity issues” requirement is covered by Form 20-F Item 5B “Liquidity and capital resources”.
An exemption according to STR section 5-7 d) can be granted in the present case.
Finanstilsynet concludes that the existing U.S. laws and provisions in the present case set out equivalent requirements to articles 13, 15 and 17 of Directive 2007/14/EC, cf. article 4 of the Transparency Directive. An exemption in accordance with STR § 5-7 a), c) and d) is granted to Frontline pursuant to the company’s application.
However, Finanstilsynet reserves the right to make renewed considerations due to decisions at a European level and in cases of changes in laws and regulations.
Pursuant to the Norwegian Public Administration Act section 28, individual decisions may be appealed to the Ministry of Finance. The time limit for lodging an appeal is three weeks from the date on which Finanstilsynet’s decision has reached the party concerned; see the Public Administration Act section 29. The appeal must be sent directly to Finanstilsynet.
Head of Section
Note 1: Applies to foreign private issuers
Note 2: Directive 2004/109/EC
Note 3: CESR, "Final Technical Advice on Possible Implementing Measures of the Transparency Directive", CESR 05-407
Note 4: United States Code