Novelties in EU prospectus regulation
On 20 July 2017, the Prospectus Regulation (EU) 2017/1129 (the “Prospectus Regulation”) came into force. The Prospectus Regulation replaced the Directive 2003/71/EC (Prospectus Directive), which has governed securities offerings in the EU. As this is an EU Regulation, it has direct effect in EU Member States without the requirement for implementation. Prospectus Regulation will also apply to EEA Member States. Even though the Prospectus Regulation is in force, many of its provisions will become effective later. The aim of the new Prospectus Regulation is to improve company’s access to capital, simplify procedures related to secondary issuances and frequent issuers and improve information disclosure for investors.
Increased Threshold for Exempting Additional Issuance
If issuers have existing securities on a regulated market, they are exempted from the requirement to publish a prospectus for new issuance. The exemption is possible only if the new securities represent less than 20% of the existing listed securities for a 12-month period and are fungible with those securities. This represents an increase from the prior threshold of 10%. Moreover, the exemption now applies to all types of listed securities, not just shares. These novelties aim for more efficient capital raising by listed companies (through accelerated bookbuild offerings and tap issuances).
New Cap on Shares Issued on Conversion of Convertible or Exchangeable Securities
A prospectus requirement shall not apply for the admission to trading of shares resulting from conversion or exchange of securities if those shares represent, over a 12-month period, less than 20% of the same class that are already on the same regulated market. This rule will not affect certain securities (e.g. securities offered pursuant to an approved prospectus or securities issued before Prospectus Regulation came into force, etc.).
Above-mentioned exemptions cannot be combined if such combination could lead to the immediate or deferred admission to trading on a regulated market over a period of 12 months of more than 20% of the number of shares of the same class already admitted to trading on the same regulated market, without a prospectus being published.
Exemption for the small capital raisings
The new prospectus rules do not apply to issues of securities with a value below €1 million. Additionally, a Member State may decide to exempt offers of securities to the public from the obligation to publish a prospectus where the total consideration of each such offer in the Union is less than a monetary amount calculated over a period of 12 months which shall not exceed EUR 8 000 000. However, these exemptions only apply to public offers of securities. Because of the small offering size, this exemption may be of limited use in cross-border transactions. It will become effective on 21 July 2018. Its aim is to make easier and cheaper for SME’s to raise funding in the EU.
Exemption regarding Offer and Admission of Non-Equity Securities by Credit Institutions
With regard to the exemption regarding the offer or admission of non-equity securities issued in a continuous or repeated manner by a credit institution, the following conditions must be met:
- ” total aggregated consideration regarding non-equity securities in the EU must be less than €75 million calculated over a period of 12 months, and
- ” non-equity securities: (i) could not be subordinated, convertible or exchangeable; and (ii) could not give a right to subscribe for or acquire other types of securities and could not be linked to a derivative instrument.
For Companies that frequently issue securities which are admitted to regulated market or a multilateral trading facility, starting on 21 July 2019, there will be a new form of shelf registration type mechanism, under which they can benefit from faster access to the capital markets. If these issuers have had a Universal Registration Document (“URD”) approved by a competent authority for two consecutive years, subsequent URDs can be filed or amended without prior approval (but subject to ex post review), and a prospectus using such URDs benefits from a faster approval process (within 5 working days as opposed to the typical 10 business days). Furthermore, the URDs can be used instead of annual financial reports (if published within four months after the end of the year) or half-yearly financial reports (if published within three months after the end of the first six months of the year). This allows frequent issuers to use a single annual disclosure document and save the cost and time.
New Simplified Disclosure Regime for Secondary Issuances
Starting from 21 July 2019 the conditions related to the secondary issuances will be eased. Issuers that have had securities already admitted to a regulated market or an SME growth market, continuously for at least the last 18 months, will have a benefit in the form of a simplified prospectus for secondary issuances. This could be especially beneficial for the issuance of debt securities, or additional shares, by issuers that have had equity securities already admitted to trading.
EU Growth Prospectus
SMEs and certain other issuers, which do not have securities admitted to a regulated market, that either (a) have an average market capitalisation of less than €500 million over 3 calendar years with securities traded on an SME growth market or (b) are offering securities with a total EU consideration of less than €20 million over a 12-month period and do not have securities traded on an MTF, will be able to use a standardised EU Growth Prospectus. For this type of prospectus simplified contents requirements are prescribed. The aim is to give to SMEs easier and more cost-efficient access to capital markets. This rule comes into force on 21 July 2019.
In this context, SMEs means companies which either:
- ” meet at least two of the following criteria:
- ” an average number of employees during the financial year of less than 250,
- ” a total balance sheet not exceeding €43 million, and/or
- ” an annual net turnover not exceeding €50 million; or
- ” had an average market capitalisation of less than €200 million on the basis of end-year quotes for the previous 3 calendar years.
Changes to Disclosure Requirements
Starting from 21 July 2019, a prospectus must include a summary that provides key information to investors about risks of the issuer, any guarantors and the securities being offered or admitted to trading.
The summary will have following sections:
- an introduction with prescribed warnings,
- key information on the issuer,
- key information on the securities and any guarantors, and
- key information on the offer to the public and/or admission to trading.
The length of the summary is limited to seven A4-size pages. Summary will not be required for prospectuses relating to the admission to trading on a regulated market of non-equity securities that are accessible only by qualified investors or with a per unit denomination of at least €100 thousand.
The new prospectus requirement regime focuses on simplifying the rules for information disclosure in the context of accessing European capital markets. In that way, it aims at providing better access for small businesses to access capital markets. It remains to be seen how the new Prospectus Regulation will affect the capital markets and if the aim of the new Prospectus Regulation will be achieved.