US market regulators are unlikely to delay Blackstone Group LP's public offering even though top lawmakers want private equity firms that go public to pay more taxes, former SEC officials said on Friday.
The Securities and Exchange Commission is facing political pressure from the top members of the Senate Finance Committee and the chairman of the House Financial Services Committee as well as heat from the country's largest labour federation.
The SEC has not yet declared Blackstone's S-1 initial public offering registration "effective." Until that key regulatory step for IPOs occurs, the commission could privately discuss changes with the company without taking public action.
"The commission doesn't need to delay the IPO," said Harvey Pitt, a former SEC chairman earlier in the Bush administration. "Unless and until the commission tells Blackstone that it has no further comments on its proposed IPO, the IPO will not move forward." SEC officials declined comment. Other experts also downplayed the chances of the SEC delaying or blocking the IPO.
"It is unlikely that in this circumstance the SEC would bow to political pressure," said Broc Romanek, who used to work in the agency's division of corporation finance, one of the divisions that reviews IPO registrations. Mark Borges, a former lawyer with the SEC's division of corporate finance, said the new legislation might slow them down slightly but would not delay the offering.
"These risks have existed for some time," said Borges, who now works at Mercer Human Resource Consulting. "Unless the company thought the risks were so great that they would have to withdraw the registration, I don't see the SEC unilaterally stopping them from what they are proposing to do."
A Senate bill to tax some private equity firms as corporations was introduced on Thursday. If the bill were to become law, funds such as Blackstone that make a public offering would face a tax rate of up to 35 percent compared with the 15 percent rate now paid by partners.
The bill, however, would exempt Blackstone and publicly traded private equity firm Fortress Investment Group LLC from complying with the new tax code for five years.
Montana Democrat Max Baucus and Iowa Republican Charles Grassley also sent letters to the SEC and the Treasury Department saying IPOs such as Blackstone's raise serious tax questions and could jeopardise the integrity of the tax code and the corporate tax base over the long term.
On Friday, Rep. Barney Frank, head of the House Financial Services Committee, demanded the SEC express its views about the "nature, structure and effects" of the Blackstone IPO.
Supporters of the legislation include the AFL-CIO. It has already complained to the SEC in letters that Blackstone should have to re-register its IPO under the Investment Company Act, which would require the company to disclose more information. But given that Blackstone's underwriters have said they aim to go public in the last week of June, little time remains for the bill to become law.
"I would assume that the legislative process is slower than the SEC review process. I don't think they will slow down the SEC review," said David Martin, partner at Covington & Burling and former director of the SEC's corporation finance division.
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