NEC, Japan’s biggest maker of personal computers, faces a blow to its corporate prestige after admitting on Thursday that it was unlikely to meet a key accounting deadline in the US.
If NEC is unable to supply the US Securities and Exchange Commission with a complete annual report for fiscal 2005 by April 2, the Japanese IT group will lose its listing in the US – a source of corporate pride since the company first issued American depositary receipts in 1963.
The group has been wrestling since last September to comply with stricter US accounting standards and the demands of its auditor. It said on Thursday that it could no longer guarantee that its ADRs would remain listed on the Nasdaq exchange after April 2.
NEC said that, while the company continued to make a priority of efforts to protect its US listing, it was unlikely to meet the SEC’s deadline.
Brokers said the financial impact of NEC’s delisting from Nasdaq would probably be small – the ADRs represent only 1 per cent of NEC’s total share issuance and the wash of NEC stock released by the delisting would quickly be absorbed on the Tokyo exchange.
“It is all about the blow to prestige,” said Marc Desmidt a senior fund manager at Blackrock. “Are they using these ADRs for serious
capital raising? No. This is just about the loss of face if a big Japanese company
gets delisted in the US.”
In spite of a series of deadline extensions, NEC has struggled to provide its auditors with at least 100,000 data points relating to fair pricing of its maintenance service contracts.
NEC’s listed status in the US came under threat last autumn, when the company postponed filing its annual report to the SEC, blaming its shift from Japanese to US accounting standards.
A month later, the company was given a February 28 deadline to provide the necessary information to its auditor, Ernst & Young ShinNihon, and to the SEC. NEC appealed for an extension and was given the April 2 deadline.